Client Alert: New Law and Court Case Require Reexamination of Non-compete and Non-solicitation Agreements in North Carolina
Non-compete and non-solicitation agreements help prevent your company’s departed employees and consultants from engaging in unwanted competition and solicitation of your customers and employees. Recent changes in the law strongly support revising template agreements going forward.
The North Carolina Business Court’s recent decision in Sandhills Home Care, LLC v. Companion Home Care-Unimed, Inc. will likely impact enforceability of these agreements in the state. Specifically, non-compete terms that restrict a former employee from work unrelated to the job performed with you will not be enforced. Prohibiting employees from “advising” or “holding any ownership interest in” competitors also goes too far. Following Sandhills, companies should narrowly tailor the restricted activities subject to non-compete provisions. Non-solicitation provisions should also receive a fresh look.
Additionally, the U.S. government enacted the Defend Trade Secrets Protection Act this spring. The Act provides increased protection for employers and significant new remedies for misuse of trade secrets. But, it also requires that employers provide employees and contractors with specific notice of the Act before the employer can take full advantage of those remedies.
We do not believe that previously executed non-competition and non-solicitation agreements need to be renegotiated or revised. We believe courts will continue to enforce the provisions of earlier agreements that remain enforceable after the Sandhills decision. Hutchison attorneys have always advised that companies narrowly tailor these provisions in terms of time, territory and restricted activities. Further, the Defend Trade Secrets Protection Act does not change state law protection of trade secrets or federal trade secret theft laws. The new notice requirements of the Act only apply to agreements protecting trade secrets entered into after the Act took effect on May 11, 2016.
Going forward, it’s time to revise your template agreement to comply with Sandhills and to provide the notice required by the Defend Trade Secrets Protection Act so that you may take advantage of its protection if necessary.
The attorneys at Hutchison PLLC are here to help. If you would like us to review and update your current agreements or develop an agreement specifically tailored to meet the needs of your business, please contact your regular Hutchison attorney or Frances-Ann Moran.
This Alert is provided for informational purposes only and is not intended to be, nor should it be construed as, legal advice on any specific matter, nor does it represent any undertaking to keep recipients advised of all relevant legal developments. This Alert does not create or constitute an invitation to create an attorney-client relationship, nor should it be construed as an advertisement or solicitation for legal services. This material may be considered Attorney Advertising in some states. Prior results do not guarantee a similar outcome.
© 2016 Hutchison PLLC