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Business Disputes FAQs

1. Are non-competition agreements upheld in North Carolina?

Yes. The better question is “How restrictive can a non-compete agreement be and still be enforceable?” When a court considers the enforceability of a covenant not to compete, the judge examines whether there was consideration underlying the agreement. A judge will look to the reasonableness of its time and geographic restrictions, balancing the employee’s right to work against the legitimate business interests of the employer. In general, while the courts disfavor non-compete agreements and won’t black-line an agreement, if it meets the test, the court will enforce it.

While the analysis creates a case-by-case result, the general rule is that for enforceability of a non-compete agreement in North Carolina, the agreement must be:

  1. in writing;
  2. part of an employment contract;
  3. based on valuable consideration;
  4. be reasonable as to time and territory; and
  5. be designed to protect the employer’s legitimate business interests.

The bottom line is the agreement must be reasonable.

2. What factors does a court consider when analyzing “geographic limits” of non-compete agreements?

To prove the reasonableness of geographic area restriction disputes, the employer must show where its customers are located, and that the geographic restriction is necessary to maintain and protect those customer relationships. The employer must also show that the territory embraced by the covenant is no more than necessary to secure the protection of its business or goodwill.

Factors affecting the validity of the business dispute include the area or scope of restriction, the area assigned to the employee, the area where the employee actually worked or was subject to work, the area in which the employer operated, the nature of the business involved, and the nature of the employee’s duty and his knowledge of the employer’s business operation.

3. How does a non-solicitation agreement differ from a non-compete agreement?

A non-solicitation agreement restricts the actions of an employee after they cease working for an employer. This type of agreement prohibits a prior employee from contacting customers of the employer for a certain period after termination. Like non-compete agreements, non-solicitation agreements should be drafted very carefully, and they should be tailored to the specific nuances of the trade or industry in order to be enforced. Generally, the agreement should identify the time period during which the solicitation ban is in effect and it needs to describe and identify with particularity the customers, or class of customers, that the employee is prohibited from contacting. A well-drafted non-solicitation agreement also has terms that prevent avoidance techniques, such as passing along the information to third parties.

If you have a business dispute that may require the assistance of a qualified business law attorney, please contact Hannah Sheridan & Cochran, LLP, at 919-859-6840.

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