Three Things to Know About Non-Compete Agreements

By Lane V. Erickson, Idaho Business Attorney

In the business world, one of the most important resources you will have available to you are the people who actually do the work for you and your business. This could include either employees or independent contractors. In many instances, these people are key to the ongoing success of your business operation. This may be true because they understand the process has better than anyone else. Or, alternatively, these individuals may have developed relationships with your customers that keep your customers coming back to your business. Regardless of how or why the people who work for you are important to your business, one thing you understand clearly, is that if these individuals left working for your business, it would have a detrimental impact if they began competing against your business and using the knowledge or relationships, they’ve developed against you. This is where the use of a non-compete agreement could be very helpful in protecting your business.

At the Racine law office, our premier team of Idaho business lawyers have assisted business clients in structuring and protecting their businesses for over 70 years. We take the time to get to know our clients and their businesses so that we can provide the best legal counsel possible in protecting our client’s business interests. Doing this often includes the use of a non-compete agreement with employees or independent contractors who work for our clients.

So, what is a non-compete agreement and how can it help our business clients? Below are the three most important things that you should know about non-compete agreements and how they can help your business.

The first thing that you need to know and understand is exactly what a non-compete agreement is. Essentially, a non-compete agreement is a written contract that is signed by either an employee or an independent contractor. This contract is designed to specifically limit that employee or independent contractor’s ability to compete against your business for a certain period of time within a certain geographical location after they are no longer working for the business. This is true regardless of whether they were terminated, or they left their job voluntarily.  

The key to a non-compete agreement is that it is in writing, and it is easy for both parties to understand. The language used in the non-compete agreement should be simple and direct. The agreement should be signed by the employee or the independent contractor. Additionally, the agreement should be dated so that it is clear when the agreement was entered into.

The second thing that you should understand is that the specific purpose of a non-compete agreement is to protect your legitimate business interests. In order to accomplish this the non-compete agreement has to be very specific about a couple of different things.

First, the non-compete agreement has to be specific about how long it will last. There is no specific time frame set for how long a non-compete will last. In the past, the parties which would include the business owner and the employee or independent contractor would simply negotiate how long a period of time the non-compete agreement would last. Sometimes these would last six months and sometimes they would last as long as five years. When this would occur Idaho courts would review the agreement and determine whether or not the time frame that was chosen would be a legitimate protection or whether it would be an undue hardship on the employee or independent contractor. As a result, courts would come up with all sorts of different time frames that it believed under the circumstances were legitimate and enforceable.

The second thing the non-compete agreement has to be specific about is the geographical location it would apply to. As an example, a non-compete agreement could have language in it that would say that the employee or independent contractor would not compete against the business for a period of one year within a 50-mile radius of the business. Again, the courts would review the language in the non-compete agreement and determine whether or not it was reasonable in scope of the geographical location based on the actual operation of the business.

When a court would determine whether or not a non-compete agreement was enforceable, it would also define the specific parameters of the agreement if it was going to be changed and be different from what was written into the non-compete agreement itself. This led to a lot of confusion among business owners about whether non-compete agreements were enforceable, and if they were, what the scope of that enforcement would be. This then leads to the next question which is does Idaho law enforce non-compete agreements?

Because a non-compete agreement is a contract, so long as it is a valid contract, it will be enforceable under existing Idaho law. But the laws in Idaho are ever-changing and recently several statutes were enacted that dealt with non-compete agreements. These statutes are found at Idaho Code §§ 44-2701 et seq.

These statutes clarified a long line of existing case law that was often confusing and difficult to follow. The statutes simplified the process of determining whether or not a non-compete agreement would be enforceable under existing Idaho law. In summary, these statutes provide a bright-line rule that presumes that a non-compete agreement is enforceable for a period of up to 18 months and within the actual geographic areas where the employee or independent contractor provides services.  With these changes, we are now able to assist our clients in creating enforceable non-compete agreements that withstand the scrutiny of the Courts and protect our client’s business interests.

We have helped numerous business clients craft and use non-compete agreements as part of their business structure with their employees or independent contractors. We understand these laws and have experience in working with these laws with our business clients. We are confident that we can help you too!

Our team of Idaho lawyers can help you with any of your business structure or operation needs. Whether you are seeking to create a new business or review a current business, we are available to discuss your options and answer your questions at an initial consultation. Call us toll free at 877.232.6101 or 208.232.6101 for a consultation. You can also email us directly at lane@racineolson.com or stop by our office at 201 East Center Street, Pocatello, Idaho 83201. We will answer your questions and help you solve your Idaho business problems.