Covenants Not to Compete

This article will discuss the enforceability of covenants not to compete when they are used in commercial business settings. There will be no discussion of the forms of relief available if a court determines that a covenant is enforceable. Also omitted from this article are noncompetition agreements which accompany the sale of a business or dissolution of a partnership. Finally, a discussion concerning covenants not to compete between professionals (attorneys, physicians, etc.) will not be a part of this current article.

In most states today, courts will enforce a covenant not to compete if the covenant is found to be “reasonable,” that is, the length of time, geographic scope, and type of activities restricted are necessary to protect the former employer’s business such as preserving the former employer’s relationships with its customers. In determining the covenant’s reasonableness, courts will ask two questions: (1) Does the employer have a protectable interest? and (2) Is the restrictive covenant reasonably related to protecting that interest?