5 Things Your Company Should Consider When Deciding Whether to Enforce a Covenant Not To Compete

Should your company enforce a non-compete provision when an employee leaves to work for a competitor?  I can’t really answer that question beyond saying in typical attorney fashion that, “It depends.”  What I can do is discuss some of the factors your company should consider when making that decision and some of the questions it should answer.

Importance of the Interest Your Company Seeks to Protect

This is the single most important factor.  The purpose of a covenant not to compete or any other restrictive covenant is to protect a legitimate business interest. The most common scenario involves preventing the disclosure of confidential or proprietary information.

So how important is the information your company is concerned about?  Is there a significant risk of exposure?  Did the former employee actually have access to the types of information your company seeks to protect?  Is that information included within the scope of the non-compete provision?

The Employee’s Position With and Value To His New Employer.

What is the former employee’s position at his new employer?  What are his duties in that position? Is there any connection between the types of information the employee had access to at your company and the duties or responsibilities of his new position?  Is there a likelihood that the former employee will use your company’s confidential information in performing his duties for his new employer?

And how valuable is the employee (and the position) to his new employer?  The answer to this question is important because it will provide some insight into how the new employer may respond to an attempt to enforce a non-compete agreement.  If the employee is critical to the company’s business then his new employer is more likely to defend his position.  On the other hand, some lower level positions may not be worth the effort and expense of litigation.

Effects of Not Enforcing the Non-Compete Agreement.

This is another important factor.  What happens if you do not enforce the non-compete agreement?  Employees gossip.  No doubt they will notice if an employee leaves to work for a competitor and your company does not enforce the non-compete agreement.  Not enforcing the non-compete provision may cause other employees to ignore it under the assumption that your company will not enforce it.

The decision to not enforce a non-compete may also come up in subsequent litigation.  If another employee with access to similar information leaves for a similar position with a new company, then your company may have difficulty enforcing the non-compete agreement if you did not try to enforce it the first time.  At the very least you will likely have to answer the question of why you chose not to enforce the non-compete in the first instance.

Impact of Litigation On Business Operations.

You should always consider the impact of potential litigation on your company.  Understand that the former employee’s managers and other high-level employees could become witnesses during the litigation.  Have you given thought about the disruption to your company’s business that would be caused by them having to take the time to prepare for and sit through depositions?  What about testifying at trial?  Have you considered the type of questions your managers and employees may have to answer during a deposition?  Could you end up exposing more information to the other party through litigation than you risk by not enforcing the non-compete provision?

History Between Your Company and the New Employer.

What about the history between your company and the new employer?  Have you hired any employees from the new employer recently?  Were they subject to a non-compete agreement at the time?  Are there any other pending disputes between the companies?

It is certainly worth considering whether an attempt to enforce this non-compete provision could lead to more complicated litigation.

This list is by no means exhaustive and every circumstance will require its own evaluation, but hopefully this provides you with some guidance on the factors your company should consider when deciding whether or not to enforce a non-compete agreement.

D. Bryan Willis

D. Bryan Willis

Bryan Willis is a Tyler lawyer providing legal services across Texas in the areas of business law, litigation, probate, and estate planning.
D. Bryan Willis

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