A well drafted noncompetition clause will generally be enforceable, in which case it would (depending on its terms) significantly restrict the work opportunities employee can pursue after termination. However, writing a well drafted clause can be challenging and it’s not uncommon for noncompetition clauses to be unenforceable in court.
The main question when addressing the enforceability of a noncompetition clause is whether its terms are reasonable. On a high level, if the clause is reasonable, it’s probably enforceable; if it’s unreasonable, it is not enforceable. The reasonableness of a noncompetition clause is dependent on circumstances, but four main criteria are most prominent:
- temporal scope
- geographic scope
- scope of restricted activities, and
- the existence of a proprietary interest that requires protection.
Temporal scope
This refers to the length of time the restriction would apply. For example, a clause might restrict competition for two months, two years, 10 years, etc. If the noncompetition clause does not include a temporal scope, it would suggest one of two things: (1) either the clause is meant to restrict the employee indefinitely, or (2) the restriction lasts for some implied and indeterminate period of time (such as “a reasonable” duration). Either way, it would not satisfy the common requirement that the clause have a reasonable and precisely described temporal scope.
Geographic scope
This refers to the physical area within which the restriction applies. A clause that states no geographic scope or, similarly, purports to apply everywhere, would generally be considered unreasonable. Moreover, the description of geographic scope must be precise, without genuine ambiguity. For example the “city limits of Timbuktu” may be precise if the city limits are objectively ascertainable, whereas “greater Timbuktu” may be imprecise, if it leaves ambiguity as to which satellite communities or surrounding communities are part of the greater Timbuktu region.
Scope of restricted activities
This refers to the range of activities that the clause prohibits. Consider, a prohibition on providing “architectural design services” is broader than “residential architectural design services.” If the company exclusively deals with residential home building design, then a prohibition against doing any architectural design work would be broader than necessary and thus potentially unreasonable. How would it affect the company if the worker provided architectural design services for commercial skyscrapers?
An overbroad description of restricted services risks making the clause unenforceable.
Proprietary interest
A “proprietary interest” is a broad and amorphous concept, but would include things such as confidential information, client base, business relationships and intellectual property.
If the noncompetition clause is not related to the protection of a genuine proprietary interest, then it stands at risk of being unenforceable. This goes to the point that a restraint on trade which serves no legitimate purpose but merely insulates the company from competition is against public policy and considered unreasonable.
The proprietary interest that the clause aims to protect often ties into the court’s assessment of reasonableness of geographic/temporal scope and scope of restricted activities. If the restriction on one of those fronts is broader than reasonably necessary to protect the relevant proprietary interest, then the court would have a basis for refusing to enforce the clause.
[see notes for more]