Non-competition agreements, also known as covenants not to compete or restrictive covenants, are employment contracts used by employers to limit the ability of an employee to compete with the employer by stealing customers or trade secrets. Enforceable agreements must strike a balance between protecting the employer’s legitimate business interests from an unfair competitive advantage with the employee’s right to work in a field for which he or she is trained.  In general, courts decide what is considered reasonable or not reasonable by examining the type and size of the business, how long and over what geographic area the restrictions apply and whether adequate consideration, or benefit, was given the employee at the time the agreement was signed.

The Law In Idaho

Idaho courts have determined that restrictive covenants are enforceable if the terms are reasonable and necessary to protect an employer’s customer contacts, trade secrets and other confidential information and the time, energy and money spent to assist an employee to develop a business.

Consideration

With any contractual arrangement, both parties must be giving and receiving something of value, also known as consideration. Idaho courts have determined that the offer of continued employment is sufficient consideration or benefit to the employee in exchange for agreeing to not compete with the employer should the employment relationship terminate.The courts have not yet addressed whether the initial offer of employment is sufficient.

Reasonableness in Time and Geographic Scope

Agreements may be deemed unenforceable if a court finds that they are unreasonable in terms of duration, geographic scope and the type of employment or line of business being restricted. If a court finds an agreement is unreasonable, it may use what is known as the “blue pencil rule” to strike the offending word or phrase.  But the court will not add terms to the agreement because that would be rewriting the contract the parties agreed to.

Examples of non-compete agreements that Idaho courts have found to be reasonable include:

• A 1-year restriction from doing business in any country where the employer did business was reasonable because the number of countries was relatively few, the former employee knew which countries they were and the employee helped draft the non-competition agreement.
• A 1-year restriction against engaging “in any capacity int he truck brokerage business” within 300 miles of the company’s headquarters.
• A 2-year, 25-mile radius restriction against a physician.

The courts have found the following restrictive covenants unreasonable:

• A 2-year restriction against an engineer from offering, selling or trading his services to past or current customers of former employer because the scope of activities included in “services” was not defined and the agreement covered customers the former employee may not have had contact with.
• A restriction against an insurance salesman that was unlimited as to time, area and scope of activity.

Employers need to keep these issues in mind when asking employees to sign restrictive covenants. It is also important to know if potential new hires have a non-compete agreement with a former employer. In some cases, the new employer can be liable to the former employer if hiring the employee would put him or her in violation of the agreement. Different rules may apply to situations in which all or part of a business is being sold and a restrictive covenant is agreed to by the buyer and the seller.