Department/School

Ethics and Business Law

Date of this version

Spring 2008

Document Type

Article

Keywords

employment law, noncompete agreements, trade secrets, inevitable disclosure

Abstract

Businesses increasingly rely on employee non-compete agreements to protect their assets and forestall competition by former employees, a trend that will likely continue given the ascendancy of the information economy and the fundamental changes taking place in the post-industrial employment relationship. The proper balance between and among the competing interests of employers, employees and society implicated by post-employment restraints will continue to be an important public policy issue. This paper analyzes recent developments in the law of employee non-compete agreements and proposes an alternative framework to judge the enforceability of post-employment restraints on competition.

Under our proposed policy framework, employee non-compete agreements designed to prevent the exploitation of the former employer’s customer relationships would be enforceable under a modified common law reasonableness standard. Trade secrets, however, would no longer be deemed a protectible interest justifying a covenant not to compete. Employers could prevent competition by a former employee only under the inevitable disclosure doctrine, which we contend provides a more balanced and fair resolution of the competing interests of employers and employees with regard to trade secrets and post-employment competition. By substituting a carefully framed injunction based on demonstrated necessity (inevitability) for the enforcement of a non-compete agreement based only on the potential for trade secret misappropriation, the proposed framework would support a climate of employee mobility while providing businesses an adequate level of protection for their trade secrets.

Published in

American Business Law Journal

Citation/Other Information

Volume 45(1), 107-186