How to Make Non-Compete Agreements Stick

Our business owner clients often love the idea of a non-compete agreement because it can guarantee that good employees stay around–or so the thinking goes. As employment litigators know, however, courts generally don’t like them, so if you want to make them stick, you need to take a targeted approach when drafting them.

A blanket statement like, “Doug Employee agrees that he will never work for a competitor of Acme Corporation,” is never going to fly. The first problem is that it doesn’t have any time limitation. The general rule of thumb is that anything longer that two years is going to be a problem in Wisconsin, so I usually recommend a year just to be safe.

The second issue is that there isn’t any geographical limitation. The area where the business operates is usually fair game for a non-compete agreement, but if a business operates state or nationwide, that geographic area isn’t going to work. Wisconsin courts are usually fine with a 10 to 20 mile area surrounding a company’s offices, so that’s what I tend to shoot for.

Finally, in what’s sort of a catch-all factor, a court will look at whether the non-compete agreement is “reasonable.” Obviously the geographic and temporal scope play into this analysis, but a court will also consider some other questions: Does the business need this non-compete to fairly compete in the marketplace? Can the employee still earn a living if the non-compete is enforced? Will the public be hurt by enforcing this agreement (non-competes involving healthcare workers are often thrown out on this basis)?

When a client asks me to draft a non-compete, I make sure to ask them whether they really need it because if it’s challenged in court, that’s what the judge is going to ask. If it seems like the reason for the clause is to stop employees from leaving, don’t plan on it being upheld. If, however, it’s meant to protect a company from having its proprietary information divulged, and it’s narrowly tailored to achieve that purpose, then the odds of it being enforceable are much better.