Choice of Law in Non-Compete Agreements

What if the state where my business is located does not favor enforcement of non-compete agreements?  As a business owner interested in obtaining non-compete agreements from key employees you may have options.  Your business may be able to incorporate the application of another state’s laws in interpreting and enforcing your non-compete agreement which is called a choice of law provision.   For instance, if your business or your employee has a nexus to a state with more favorable non-compete laws than the state in which you are sitting then you may be able to select the application of that state’s law to your non-compete agreement.

If your business is located in a California and your employees are all located in California then you will likely not be able to designate the application of Michigan law to your non-compete agreement.  Court’s require some nexus or affiliation with a state in order to invoke its laws in the interpretation and enforcement of a contractual agreement.  If, however, you have locations in multiple states, are incorporated in a state where you don’t have an office or have employees located in various states you may have an opportunity to select a state in which you have some nexus to enable your business to better enforce your non-compete agreements.

The enforcement of non-compete agreements can vary considerably from state to state from no enforcement of a non-compete agreement to presumptions of validity in the enforcement of non-compete agreements.  If your business or key employee has a connection with more than one state, and enforcement of your non-compete agreement is important to your business, you may want to consult an attorney with knowledge in the various state laws governing non-compete agreements to determine if you are eligible to consider a choice of law provision in your non-compete agreement.  A choice of law provision to make the most beneficial state law applicable to the enforcement of your non-compete agreement may be worth investigating to achieve maximum compliance with your employee non-compete agreements.