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 Nebraska

Nebraska courts have determined that restrictive covenants are enforceable if the terms are reasonable and necessary to protect certain business interests of the employer such as confidential information, trade secrets and current customer lists. Factors considered when determining reasonableness include the hardship an agreement puts on the former employee, its effect on the general public and the restrictions placed on time, territory and activity of the former employee.

Consideration

With any contractual arrangement, both parties must be giving and receiving something of value, also known as consideration. Nebraska courts have determined that the offer of initial or 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.

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.  Nebraska courts have consistently ruled that if any part of an agreement is unreasonable, the entire agreement is invalid.  The court will not modify or strike the offending language to make the agreement lawful.

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

• A 1-year restriction against an employment agency recruiter from soliciting clients with whom the employee actually did business and had direct personal contact during the period of employment.
• A 75-mile radius restriction against an accountant from competing with the former employer accounting firm.

The courts have found the following restrictive covenants unreasonable:

• A 2-year, 95-mile radius restriction against an insurance salesperson from competing with or soliciting customers from the former employer.
• A 2-year, 25-mile restriction against a tax return preparer from soliciting any of the former employer’s where the former employee did not have contact with all of its customers.
• A restriction against a former insurance agent from soliciting or selling to entities that were not customers of the former employer.

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.