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Tennessee Employment Law Center Tennessee Employment Law Center
Tennessee Employment Law Center
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Non-Compete Agreements

In today's highly competitive marketplace, companies are increasingly relying on non-compete agreements or non-compete clauses to protect markets and trade secrets. A non-compete agreement is a contract between an employee and employer in which the employee agrees to abide by specific restrictions on competition if his employment terminates. Non-compete agreements usually include geographic and time restrictions, as well as agreements not to divulge trade secrets or lure customers away from the employer. Generally, a non-compete will prohibit the employee from setting up a competing business or from competing as an employee of another company within the time and geographic limitations included in the non-compete. For the most part, non-compete agreements are legal and binding so long as the agreement is not too broad in scope or oppressive. However, some, perhaps many, employers misinterpret the law in this area, and courts do not generally, and historically, like non-compete agreements.

If not faced with some act of gross and obvious misconduct of the departing employee, judges are generally reluctant to enforce these agreements. Listed below are some important things to consider when looking at your non-compete agreement, whether you are the employer or the employee.

Important Information:

  • Non-compete agreements are generally not favored by the courts because they are viewed as restraints on trade.
     
  • Courts look closely at the reasonableness of the agreement to determine if the agreement is enforceable.
     
  • In Tennessee, non-compete agreements or restrictive covenants are not always enforceable.
     
  • Tennessee courts look to the following factors to determine if non-compete agreements are enforceable:
     
    • Consideration given for the agreement.
       
    • Danger to the employer if there is no such agreement.
       
    • Economic hardship on the employee created by the covenant.
       
    • Public interest.
       
    • Scope of restrictions, including:
       
      1. Geographic location covered.
         
      2. Time period of restriction.
         
      3. Job description.
         
  • Common examples of when you should look to see if your non-compete agreement is enforceable:
     
    • If you only worked for a short time for the company.
       
    • f your employer breached the contract with you. Examples include:
       
      1. No overtime pay when it is deserved.
         
      2. Not paying all commissions that are due.
         
      3. Failure to pay a promised bonus.
         
    • If your employer directed you to engage in illegal conduct. Examples include:
       
      1. Sales fraud.
         
      2. Environmental violations.
         
      3. Antitrust violations.
         
  • Tennessee courts will sometimes modify the agreement if they find it mildly unreasonable. This is called "blue penciling" an agreement.

Remedies and Damages:

  • If the agreement is wholly enforceable, the court will most likely issue an injunction which will stop the employee from engaging in the activity prohibited under the agreement.
     
  • If the courts find the agreement mildly unreasonable, they can modify the agreement to make the terms fair. Alternatively, the court may choose to enforce some but not all of the provisions.
     
  • If the court finds the agreement oppressive and it cannot be satisfactorily modified, the court will probably throw out the agreement entirely.
     
  • In addition to injunctive relief, the court might also award monetary damages to compensate for any business lost due to the unfair competition.
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