Non-compete agreement can also be effective in protecting trade secrets or confidential information. Also, if you purchase a business you should insist on a non-compete agreement from the seller to protect the good-will that you just purchased.
Arizona law recognizes the need to protect legitimate interests of employers, but also considers the need for an employee to earn a living. The restrictive covenants in non-compete agreements must be reasonable both in their duration and geographic scope. In other words, the restriction must be no greater than necessary to protect your business interest. Generally, this will be measured in how long it would take you to hire and train a replacement employee and allow them to develop the relationship with your customers. Other factors include the nature of your business and the uniqueness of the knowledge and information in the employee’s possession.
For a non-compete agreement to be an effective tool, it must be enforceable. A non-compete agreement that entirely prevents a former employee from pursuing a living in his or her chosen vocation will not be enforced. For example:
- A restriction that prevented mobile disc jockey employees from engaging in competitive activities for 2 years after termination within a 50 mile radius of Phoenix was unenforceable. The primary reason was because it only took 14 weeks to hire and train a new employee.
- A restriction that prevented a pest control employee from competing for 2 years in the entire Tucson metropolitan area was also not upheld because there was no showing of actual loss by the employer due to the fact there were 55 competitors and because the employer’s business was not unique.
- A non-compete agreement that prevented the former employee from competing for 6 months in the entire Phoenix metropolitan area, however was enforced because it was limited to a narrow industry mattress superstores and thus allowed the former employee to continue to earn a living in mattress sales, just not with a superstore.