|Brian J. Sommer|
Historically, Courts have weighed a number of factors when determining whether or not to enforce a non-compete agreement, one of them being whether or not the non-compete agreement is reasonably necessary to protect the employer's legitimate business interests. In particular, courts assess an employee's access to confidential and proprietary information. Because such information gives a company its competitive advantage, courts will consider how an employee's knowledge of company information, such as corporate strategy, new technologies, or customer lists, may negatively impact the employer's business.
Other factors historically weighed by Courts include whether there was consideration for the non-compete either in the form of a new job, or for existing employees, some additional payment, such as a bonus or stock options, and/or a promotion, and whether the non-compete agreement is reasonable in terms of length and geography in light of the employee's position as well as the nature of the employer's business. For example, a court might consider an agreement that prohibits a lead product engineer from working for a competitor within a 100 mile radius of the employer's office for two years to be reasonable, but a clause that prevents a receptionist from working for any competitor nationwide for 10 years is likely to be determined to be too restrictive.
In addition to these factors, more recently Courts have begun to consider the employee's specific circumstances and, in particular, the negative impact of enforcement will have on them as part of the deliberations. For example, courts may be less inclined to enforce a non-compete on a highly specialized, sixty (60) year old who is unlikely to be able to start anew in another industry or on employees who are the sole means of income for their family and thus have neither the time nor the money to wait out the agreement.
Thus, before departing, it is best practice for advisors to review their employment agreements for language settling for any restrictions on where, when, and under what circumstances, they can work for a competitors. If such language is in their agreement, advisors would be wise to consult with a lawyer about enforceability against their event options, if any, the advisor has.
Separately, employers of financial advisors need to be mindful that Courts will consider a departing advisor's circumstances when deciding whether or not to enforce a non-compete agreement.