Usually a non-compete agreement refers to a contract between an employer and an employee whereby the employee agrees not to engage in a trade or profession that competes with the employer’s business. Sometimes these agreements are called “non-compete clauses,” “covenants not to compete,” or “restrictive covenants.” They generally extend beyond the term of the employment relationship. For example, a hospital may want a doctor to sign a non-compete agreement prohibiting an employee doctor from practicing medicine within 50 miles of the hospital for a year after employment. This agreement would protect the hospital’s business since the doctor couldn’t quit, start up a private practice in the same area, and steal patients from the hospital—at least not without breaking the non-compete agreement and risking being sued in court.
Although almost every state, including Idaho, allows non-compete agreements, a few do not. There are good policy reasons behind allowing non-compete agreements, including allowing parties the freedom to contract, protecting legitimate business interests, and incentivizing employers to provide expensive on-the-job training. On the other hand, others argue non-competes hurt the economy because they stifle worker mobility and the spread of ideas. Also, some claim non-competes create unemployment because people are prohibited from using their professional skills. Low-skilled employees such as fast-food workers seem to be especially harmed by non-competes.
In Idaho, non-competes seem to strike a balance between competing policy concerns. As an initial matter, non-competes are only enforceable against a “key employee” or “key independent contractor,” which are persons who have gained a high level of inside knowledge and influence with the company due to the employer’s investment of time, money, trust, etc. in the employee. A person is presumed to be a key employee if they are among the highest paid five percent in the company. This requirement seems to protect employees engaged in low-skill, low-paying industries. For example, it is unlikely that fast food workers will qualify as key employees, so they are free to jump between jobs without the restrictions of a non-compete.
Next, a non-compete is only enforceable if it is reasonable as to time, geographical area, and type of employment. An agreement is presumed to meet these reasonableness requirements if lasts for only 18 months or less following employment, is limited to where the key employee worked or provided services, and is limited to the type of work the employee engaged in while employed.
Finally, the non-compete must “not impose a greater restraint than is reasonably necessary to protect the employer’s legitimate business interests.”
Even if a non-compete is overly broad and unenforceable in one respect or another, the agreement is not thrown out entirely. Rather, Idaho law seems to require courts to limit or modify unreasonable agreements to make them reasonable and then enforce them as modified. Thus, employers may have an incentive to draft agreements that are pushing the limits of reasonableness. If overbroad, a court may just whittle them down a bit and enforce them anyway.
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