In Copypro, Inc. v. Musgrove, No. COA13-297 (N.C. App. Feb. 4, 2014), an employer (Plaintiff) sued its former employee (Defendant) for allegedly breaching a noncompetition agreement, also known as a covenant not to compete.
The facts of the case were that the Defendant worked as a salesperson for Plaintiff in the office equipment business. When he started work, Defendant signed a noncompetition agreement which provided that for three years following Defendant’s termination, he was prohibited from being employed “or connected in any manner with any business of the type and character of the business engaged in by the [Plaintiff]” in any of the 33 eastern North Carolina counties in which Plaintiff did business. During his employment, 95% of Defendant’s sales calls were made in just two counties in eastern North Carolina. After Defendant resigned from his employment, he started working for a competitor of Plaintiff’s. Defendant’s new employer specifically required that Defendant not contact any of Plaintiff’s customers or conduct business within the territory he had been assigned when he worked for Plaintiff.
The Court of Appeals stated that a “noncompetition agreement contained in or associated with an employment agreement is subject to careful scrutiny.” The court explained that a “valid noncompetition agreement entered into in the employer-employee context must be (1) in writing; (2) reasonable as to time and territory; (3) made a part of the employment contract; (4) based on valuable consideration; and (5) designed to protect a legitimate business interest of the employer.”
Focusing on the fifth requirement, the court noted that “overly broad restrictions are generally not enforceable in the employer-employee context on the grounds that the scope of the restrictions contained in such agreements far exceeds those necessary to protect an employer’s legitimate business interests.” In this case, the noncompetition agreement prohibited Defendant from working for another company in any capacity, even as a custodian. The court concluded that the noncompetition agreement prohibited Defendant from working “in a much broader array of activities than is necessary to protect Plaintiff’s legitimate business interests.” As such, the court ruled that the noncompetition agreement was unenforceable.
The bottom line for employers in North Carolina is that noncompetition agreements, while valid if they comply with certain requirements, may be found to be unenforceable if they are broader than is necessary to protect the employer’s legitimate business interests.