Protecting Legitimate Business Interests

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Matt: Hi. It’s Matt Plessner for Trade Secret Law Radio. Today, we’re going to be talking about non-competes and protecting your legitimate business interests. To help us do that, we’re speaking with attorney-at-law, Mark Clark, from the Traverse Legal Office in Traverse City, Michigan. Mark, how are you?

Mark: I’m doing very well, Matt. How are you?

Matt: I’m doing very well. Thanks for asking. Mark, what does a non-compete protect?

Mark: Well, a non-compete agreement, Matt, protects businesses. Most states in the country have indicated that in order for a non-compete agreement between an employer and an employee to be valid and enforceable, it must protect that business’s legitimate business interests.

Matt: Mark, what is a legitimate business interest?

Mark: Well, Matt, the courts have varied on this, but again, most states have indicated that a non-compete agreement can’t simply be a restraint on trade and restrict competition. That means that a non-compete can’t exist simply to prevent an employee who leaves from competing with your business. What courts generally indicate is that a valid non-compete must protect what the law considers to be a legitimate business interest.

An employer may ask, “Well, if I really can’t restrict competition, what is a legitimate business interest?” Well, in fact, many courts have recognized that companies have a legitimate business interest in protecting their customer lists. A customer list, for instance, could be considered a trade secret and protectable under the laws of most states. Therefore, while a non-compete agreement may not exist simply to restrict competition, it may exist to protect a legitimate business interest in customer lists. There have been a lot of litigation and court cases, but the trend is to allow an employer to protect the legitimate business interests of protecting their customer lists.

One way this is done is to make sure that your restriction on the employee is reasonable in both scope and duration. In other words, a court may allow you to protect your customer lists by preventing a sales person from calling on your customers for a reasonable period of time. Some states will indicate that if you have extracted an unreasonable non-compete restriction in time or duration, that they will simply throw it out and make it non-valid.

So, when you are crafting a non-compete for a specific employee, consider what is reasonable, and you may want to consult with an attorney in terms of what your state has recognized as reasonable in both time and duration of the non-compete restrictions in order to make that non-compete valid.

Matt: Well, Mark, as always, thank you very much for hanging out with us today.

Mark: Thank you very much, Matt. It’s always a pleasure speaking with you.

Matt: Join us next time on Trademark Law Radio. I’m Matt.

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