Is that Non-Compete Agreement Enforceable?

By:  Justin A. Sheldon

A non-compete agreement is a contract between an employee and an employer in which the employee agrees not to enter into competition with the employer, generally, following employment. The primary purpose of a non-compete agreement is to limit, restrict and prevent an employee from competing against the employer for a period of time following the termination of employment, whether it be working for a competitor, opening a competing business or acquiring a competing business. A secondary purpose of a non-compete agreement is to limit the employee’s ability to use the knowledge the employee gained during the employees’ tenure with the employer.

Although non-compete agreements are common in a number of industries, employers often times overly restrict an ex-employee, or, in the alternative, put an excessive duration in the agreement, resulting in a non-compete agreement that fails to protect a legitimate business interest, and, therefore, is subject to being declared unreasonable and unenforceable. In Gaver v. Schneider’s O.K. Tire Co., 289 Neb. 491 (2014), the Nebraska Supreme Court reiterated the general rule under Nebraska law regarding the enforceability of a non-compete agreement. Recognizing that there are three considerations used to test the enforceability, the Nebraska Supreme reiterated that in order for a non-compete to be valid it must be 1) reasonable in the sense that it is not injurious to the public; 2) not greater than is reasonably necessary to protect the employer in some legitimate interest; and 3) not unduly harsh and oppressive on the employee.

Of the three considerations, the Nebraska Supreme Court has suggested that it is best to consider whether the non-compete agreement protects a legitimate business interest of the employer against a former employee’s competition by improper and unfair means, and that it is not simply protecting and employer against ordinary competition. Aon Consulting v. Midlands Fin., 275 Neb. 642 (2008). In determining whether the competition at issues is “ordinary competition” and not “unfair competition” Nebraska courts focus on an employee’s opportunity to appropriate the employer’s goodwill by initiating personal contacts with an ex-employer’s customers. If an ex-employee is found to have had substantial personal contact with employer’s customers during his/her employment, develops goodwill with said customers and uses the goodwill after employment, an ex-employee’s competition is deemed to be unfair and a legitimate need exists.

More often than not, if the non-compete agreement an employer had an employee sign simply places a restriction on the ex-employees use of general skills or training acquired while working for the employer for a certain duration within a specific area, Nebraska courts will deem the non-compete unreasonable and unenforceable.

If you are an employer that requires employees to sign a non-compete, or, in the alternative, if you are an employee who is required to sign a non-compete, please feel free to contact our office to set up an appointment to discuss any potential issues.