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 New Mexico

New Mexico courts have determined that restrictive covenants are enforceable if the terms are reasonable and necessary to protect a legitimate business interest of the employer. 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. New Mexico courts have not expressly addressed the issue of consideration.  However, it appears from 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. If a court finds an agreement is unreasonable, it may modify the agreement so that it does not unduly infringe on the former employee’s ability to work.

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

• A 1-year restriction against a laundry worker from competing in the same town as the employer.
• A 3-year, 1-county restriction against a physician from practicing without the consent of the former employer medical clinic.

The courts have found the following restrictive covenants unreasonable:

• A restriction against an insurance salesperson because information he possessed about customers’ needs and expiration dates of their policies was not confidential nor trade secrets.
• A restriction against a former laundry employee from soliciting the former employer’s customers because there was no employment contract and the employee did not take any written customer lists.

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.