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Non-compete agreements get more scrutiny in down economy

With the economy in a downturn, there may well be an upturn in disputes about non-compete agreements, which prohibit employees from leaving and working for a competitor. Rising unemployment levels and the difficulty of finding a new job could lead many former employees to challenge these agreements. And this is true at a time when many courts are striking down these agreements or severely limiting them.

 The law varies from state to state, but generally a non-compete agreement must be reasonable in duration (usually less than two years), the employee must receive something in return for signing it beyond a simple continuation of employment (such as specialized training, bonus pay, or something else of value), and the agreement must actually be necessary to protect a valid business interest.

 In a recent case that has attracted a lot of attention, the California Supreme Court threw out a non-compete agreement. The employee was a tax advisor for Arthur Andersen who had signed an agreement saying he couldn’t work for former clients for 18 months after he left, and he couldn’t solicit any clients of the Los Angeles office for one year.  But the court said the agreement violated state law because it restricted his ability to practice his profession.

In Oregon, a law was enacted in 2008 that requires companies that want new employees to sign a non-compete agreement to give them two weeks’ written notice before employment begins. The law also prohibits the use of non-compete agreements for low-level employees.

In Georgia, non-competes are generally considered a violation of public policy unless they are very narrowly focused.

Even in states such as Texas which are generally employer-friendly when it comes to non-competes, an employer must show that the employee had access to confidential information, such as trade secrets, or other types of specialized training.  We’d be happy to discuss with you any concerns you have about the enforceability of a non-compete agreement.

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