Demystifying N.C. Non-Compete Contracts and Terms

Before signing a non-compete agreement in North Carolina, consult an employment attorney in Raleigh to understand the contract terms and your rights.

Note: In this article, we’re talking about non-compete agreements associated with employment. Non-compete agreements also arise in the context of the sale of a business, and those rules are less restrictive.

A non-compete agreement is a legal document that restricts your ability to work for a competing business after leaving your current job. Non-compete agreements are not particularly common outside of specific industries and particular positions, but when they appear, they often provoke anxiety. The questions we hear most during consultations about employment and severance agreements revolve around non-compete agreements — what they are and how they affect the employee’s ability to take advantage of new opportunities.

You might have heard that the FTC issued a Rule banning non-competes nationwide. The Final Rule was challenged by a Texas court, and until it actually makes it through the rule-making process, non-competes remain a matter of state law.

Non-compete agreements associated with employment are still enforceable in North Carolina and other states. California, Oklahoma, Colorado, North Dakota, Minnesota, and the District of Columbia refuse to recognize these contracts, and several other states observe restrictions based on income or profession. As court decisions often note, non-compete agreements are “disfavored” because they are at odds with the ideals behind at-will employment.

This discussion focuses on non-competes in North Carolina law as they currently stand. If you’re bound to a contract in a different state, a breach of contract lawyer near you may offer guidance, but most non-compete contracts follow the same general principles.

North Carolina courts will enforce non-compete agreements only if they meet certain defined criteria. It’s best to meet with a breach of contract lawyer near you to verify what is enforceable for your locale and profession. Most non-compete agreements follow similar enforcement rules as in North Carolina, which mandates these contracts to be:

A non-compete agreement must be in writing and part of an employment contract signed by both parties. You cannot be bound by an oral agreement or by a unilateral communication.

Second, a non-compete must be based on “valuable consideration.” That means the employer must give you something in return for your agreement to the non-compete provision. If you sign a non-compete agreement as part of your initial employment contract, the job itself is the consideration. If one is included in your severance agreement, the severance is the consideration. But in North Carolina, continued employment is not sufficient “consideration” for a non-compete agreement. In other words, if your employer asks you to sign a non-compete agreement after you’ve been working there a while, they have to give you something in return for that agreement — like a raise, promotion, bonus, or even a one-time payment. It doesn’t have to be a lot. Courts have found payments as low as $100 to be sufficient consideration for the agreement. If the consideration isn’t clear, contact an employment attorney in Raleigh who understands North Carolina contract law to review the document and offer before you sign it.

A non-compete in North Carolina must be reasonable on three counts: time, territory, and scope, which our employment law attorneys have outlined below:

Time. Courts have not set any hard time limits on the duration of a non-compete agreement, but some guidelines have emerged. Assuming all other factors are reasonable, an agreement that endures for one year after employment ends is most likely to be found reasonable. Two years is pushing it a little, and no non-compete extending beyond five years has been found reasonable.

Territory. This term refers to the geographic scope of the limitation. The territory must be defined to protect an employer’s legitimate business interest. For instance, if the interest the employer seeks to protect is knowledge about customers, the agreement should be limited to those areas where the employee works with customers.

Scope. The reach of the agreement must be tailored to the narrowest scope that will protect the employer’s legitimate business interests. Thus, the limitation must be defined in a way that applies only to actual competitors. For instance, a company that manufactures and sells furniture directly to consumers has a very different set of competitors from one that manufactures and sells office furniture. A non-compete that bans a former employee of an office furniture company from working for “furniture manufacturers” may well be unreasonable as to scope.

Scope may also refer to the kind of work the employee is limited from doing. An employee who worked as an office furniture designer is probably not endangering any business interests if he goes to work for another furniture company as, for instance, an accountant.

The enforceability of a non-compete agreement may also be affected by some other factors. If you were terminated, a court may consider the context of your termination in deciding whether the non-compete agreement is fair. And doctors and attorneys may not be bound by non-compete agreements at all.

As employment attorneys in Raleigh, we’ll advise you that the best time to negotiate the terms of a non-compete agreement in North Carolina is when you’re asked to sign it. But employees starting a new job often aren’t thinking about what happens when they leave their current employer, and severance negotiations sometimes involve other considerations. Even if you’ve already signed the document, consider having it reviewed by a law firm practicing in this area to ensure you understand your employment rights moving forward.

Contesting non-compete agreements may also require legal help. Former employees often end up in court because they’ve accepted a job that raises alarms for their former employer. At that point, the employer will file a lawsuit with a breach of contract lawyer near them seeking an injunction barring the individual from taking the job. Often, the suit names both the ex-employee and his or her new employer.

Occasionally, a non-compete can come to court because an employee — or a prospective employer — will ask the court to determine whether the agreement is valid in advance of a lawsuit. This is done through what is called an action for declaratory judgment.

If you’re looking at a non-compete agreement as part of an employment contract, offer, or severance package, you need to understand its validity and how it binds you. And if you’ve signed an N.C. non-compete agreement and you’re facing litigation, you need legal help to ensure the best outcome. Contact Miller Law Group attorneys in Raleigh, N.C., for help reviewing employment contracts or for representation in court. We understand these matters and can recommend the best way forward.