By Jon Wall, Member, Higgins Benjamin, PLLC
The North Carolina Court of Appeals recently affirmed a long line of North Carolina cases refusing to enforce overly broad noncompetition agreements. Noncompetition agreements, also called “noncompete clauses” and “covenants not to compete,” are contract clauses used to prevent an employee (or former business owner) from leaving employment and going into competition with a different employer. They generally purport to restrict the future employment of the employee for a length of time in a particular territory or region.
In Copypro, Inc., v. Musgrove, No. COA 13-297, 2014 N.C. App. LEXIS 120 (N.C. Ct. App. Feb. 4, 2014), Judge Ervin of the North Carolina Court of Appeals refused to enforce a noncompetition agreement on the ground that it was overly broad. There, an office equipment salesman agreed not to own or to work for any business like the employer’s in 33 counties for a period of three years. The trial court granted a preliminary injunction against the employee, prohibiting him from (1) divulging or utilizing certain information and (2) working for a competitor, including his then-current employer.
Reversing, the Court of Appeals observed that the noncompetition agreement prohibited the employee from working for, or “being connected in any manner with,” a competitor in any capacity. As such, the agreement would purportedly estop the employee from janitorial work for a competitor, even though such work never formed any part of
the employee’s work for the plaintiff business. The court explained, “As our decisions reflect, we have held on numerous occasions that covenants restricting an employee from working in a capacity unrelated to that in which he or she worked for the employer are generally overbroad and unenforceable.” Id.
The court distinguished Precision Walls, Inc. v. Servie, 152 N.C. App. 630, 568 S.E.2d 267 (2002)
. In that case, the defendant employee was a project manager with access to sensitive information in a number of areas. In Copypro
, however, the record did not reflect that the employee had such far-reaching knowledge of sensitive information. Thus, the court found the covenant overbroad in prohibiting the defendant employee from any type of work with a competitor and reversed the trial court’s issuance of the preliminary injunction in regard to the noncompetition agreement [the court left intact the injunction prohibiting certain disclosures, which had not been challenged on appeal].
Copypro is important for two reasons. First, it affirms that noncompetition provisions crafted in an overly broad fashion will not be enforced. Thus, in drafting, any limitation should be specifically tailored to that employee’s position. Second, proper development of the record is paramount in any litigation involving noncompetition agreements. While here it does not appear that the employer could have overcome the over breadth of its noncompetition clause, the court hinted that it would have had a more difficult decision if the record had indicated that the employee had greater responsibilities and more access to sensitive information.
The time may be ripe to ban or severely curtail noncompetition agreements. Other states have recognized that trade secrets laws, like the North Carolina Trade Secrets Protection Act, N.C. Gen. Stat. § 66-152 et seq., already protect against use or disclosure of truly sensitive information. Noncompetition agreements substantially and unfairly hinder fluidity in the key entrepreneurial labor force. Thus, forward-thinking, business-friendly states have advocated for the “the outright elimination of enforceability of non-competition agreements.” Testimony of Gregory Bialecki, Secretary of Executive Office of Housing & Economic Development, before Massachusetts legislature (Sept. 13, 2013).
Both the Triangle and Triad have attempted to foster research and innovative economies. Securing the talent necessary for these industries “is considerably more difficult if employees are legally unable to move between jobs…” Id. If North Carolina wants to compete with Boston and Silicon Valley, it needs to address noncompetition agreements, which too often are (1) of uncertain enforceability, (2) costly to litigate, and (3) too often used as a sword rather than a shield, trapping employees at their current job. Like Massachusetts, we should give serious consideration to eliminating them.
If you would like to discuss an issue involving Noncompetition Agreements, contact Jon Wall at (336) 273-1600, ext. 134, or firstname.lastname@example.org.
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