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Are Non-Compete Agreements Enforceable in the Age of Coronavirus?

Mark Clark - March 17, 2020 - Business Law, Noncompete Law

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Non-Compete Agreements are valid in most states provided they support a legitimate business interest and are reasonable in geographic scope and duration. What is “reasonable” is typically evaluated by courts at the time of the execution of your non-compete agreement or non-solicitation agreement. There will be companies downsizing. There will be employees and executives quitting to join competitors and starting their own businesses. This means non-competition and solicitation agreements will be tested.

Non-compete ‘reasonableness’ will be affected by coronavirus

Our non-compete lawyers believe that in this time of national crisis due to the corona virus or Covid-19 that Courts will engage in a broader analysis of reasonableness when it comes to a non-compete agreement and that the analysis if what may be reasonable will be analyzed more in real time and provide more deference to the employee when factoring in the negative effect of corona virus on the general state of employment.

The corona virus has caused significant disruption to businesses and those who are concerned about remaining employed or retaining employment in these difficult times.

How will courts react to Coronavirus?

Our no-compete attorneys have litigated many non-compete cases. Even in the best of times, some judges are quick to sympathize with hardship caused to the employee rather than the employer. Other judges adopt the position that a contract is a contract and both sides must live with the terms of the agreement where the non-compete is otherwise reasonable.

Unless there is good evidence another company is engaged in poaching an employee, this period where the economy is navigating the corona virus will certainly favor the employee when a court is asked to determine what may be reasonable. It is also plausible that the employee may claim the non-compete should be set aside for various reasons including an act of god or has become legally impractical given the business climate.

Should we litigate or negotiate the non-compete?

Companies have always had to weigh the merits of negotiating with employees and executives who quit or are fired over non-compete agreements, or litigating enforcement. Making a good decision will become more important with the changing landscape created by this coronavirus crisis. Factor in that many state and federal courts have temporarily shut down operations, which may cause more of a case backlog.

It is recommended that unless employers have strong evidence that another employer has engaged in targeting or poaching an employee to their advantage and your employee has not been laid off or terminated, that it may be more difficult to enforce your non-compete until the business climate has normalized and is well on its way to recovering from its bout with the corona virus or Covid-19. Clients should be ready to negotiate a resolution which balances the various factors, including the cost and time involved in noncompete enforcement during these times.

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