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 Wyoming

Wyoming 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 trade secrets, confidential information and customer relationships. Factors considered when determining reasonableness include the hardship an agreement puts on the former employee, whether the employee has acted in good faith 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. Wyoming courts have determined that the offer of initial employment is sufficient consideration or benefit to the employee in exchange for agreeing to not compete with the employer should the employment relationship terminate. An agreement signed after the employment has begun may also have the requisite consideration if it is accompanied by a promotion, additional pay, special training or other advantages for the employee.  The promise of continued employment alone is not sufficient consideration.

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. Geographic limitations are generally reasonable if they are restricted to the area in which the former employee actually worked or from which clients were drawn.  The time limitation should be no longer than necessary for the employer to hire and establish a replacement.  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.

An example of non-compete agreements that Wyoming courts have found to be reasonable is:

• A 5-mile restriction against a veterinarian from competing against the former employer for one year.  The court reduced the duration from the three years originally in the in agreement.

The courts have found the following restrictive covenants unreasonable:

• A 7-year, 3-county restriction against a general repairman.
• A 5-year restriction from competing within the former employer’s trade territories.

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.