Non-Compete Agreements in Tennessee

Has your employer or a prospective employer presented you with a non-compete agreement? Before signing, it’s wise to retain legal counsel to understand your rights and obligations. Non-compete agreements must be crafted carefully to balance the employee’s rights and the employer’s interests. An overly restrictive non-compete could limit your ability to work in your chosen industry or profession. An experienced Tennessee employment lawyer can review your non-compete and discuss potential enforceability issues that could arise.

The Employment and Commerce Law Group is a premier Nashville employment law firm focused exclusively on protecting workers and consumers throughout Tennessee. For help evaluating your non-compete agreement, contact us today for a free consultation.

What Are Non-Compete Agreements?

A non-compete agreement is a contract in which a person agrees not to compete with another party, typically in a business context. These agreements are most commonly used in employer-employee relationships. Employers often ask employees to sign non-compete agreements to protect their investment in training and professional development. Additionally, these agreements help prevent workers from using confidential information, trade secrets, or established customer and supplier relationships to compete unfairly after leaving their former employer.

Why You Should Consult Our Tennessee Employment Attorneys Before Signing a Non-Compete

Non-compete agreements can significantly affect your ability to find new work if you leave your employer for another job. Depending on the terms of a non-compete, you may have to find work in a new profession, industry, or geographic area. With such high stakes, it’s wise to consult an employment attorney at Employment and Commerce Law Group before signing a non-compete or making career decisions that could be affected by the terms of an existing agreement. Our firm can also negotiate on your behalf for more favorable terms that balance your needs and interests with the employer’s.

Key Elements of a Valid Non-Compete Agreement

A valid, enforceable non-compete agreement will have certain elements, including:

Geographic scope – A non-compete agreement must have a defined geographic scope, with an employee barred from engaging in competing activities within the geographic area. An enforceable agreement will limit the geographic scope to the areas where the employer does business.
Duration – Valid non-compete agreements must have a limited duration. When an employer has an employee sign a non-compete agreement, the agreement remains in effect for the duration of the worker’s employment. However, the non-compete must terminate after a defined period after the worker leaves the company. The reasonableness of the duration of a post-employment non-compete agreement will depend on various factors, such as the employee’s role in the company and whether the employee had access to confidential information.
Business scope – A non-compete agreement should define the types of business activities in which the person signing the contract cannot participate. An enforceable agreement will have a defined, limited scope of business activities tailored to the protected company’s operations or the work the employee performed for the employer.

Alternatives to Non-Compete Agreements

Employers and employees can negotiate other legal protections for an employer’s legitimate interests in their confidential/proprietary information, business relationships, and investment in an employee’s development. Alternatives to non-compete agreements include:

Confidentiality/non-disclosure agreements – Confidentiality and non-disclosure agreements (NDAs) prohibit employees from sharing an employer’s proprietary or confidential information with third parties or using that information for anyone else’s benefit without the employer’s permission.
Non-solicitation agreements – Non-solicitation agreements preclude employees from soliciting business from an employer’s current or prospective customers/clients. These agreements generally prohibit proactively contacting an employer’s customers/clients to offer competing services from another business.
No-hire agreements – Under a no-hire agreement, an employee agrees not to “poach” the employer’s other workers for another business, which can help protect an employer’s investment in developing its workforce.

Modifying or Negotiating a Non-Compete Agreement

Employees have the right to negotiate the terms of a non-compete agreement presented to them by their employers or prospective employers. For example, employees may negotiate with employers to reduce the territorial scope or duration of a non-compete to allow the employee to work in certain geographic areas or to seek competing work sooner after leaving the employer.

During the term of a worker’s employment, a non-compete may be modified as circumstances change. For example, new non-compete clauses may need to be added if the employee receives a promotion or gains access to new proprietary information or customer/supplier relationships. However, when an employer proposes to modify a non-compete, the employer must provide something of value as consideration for the amendment, such as a promotion or pay raise.

How Courts Evaluate Reasonableness in Tennessee

As a general rule, state laws disfavor non-compete agreements as they restrict a person’s ability to seek gainful employment or practice their trade or profession. Therefore, Tennessee courts will only enforce reasonable agreements.

When deciding whether an agreement is reasonable, a court will first determine whether an employer has a protectable business interest beyond an interest in preventing ordinary competition. Some of the factors that courts consider in finding a protectable business interest include:

Whether the employer provided the worker with specialized training
If the employee had access to trade secrets or confidential information\
Whether the employee had regular contact with the employer’s customers, clients, or suppliers, who might see the employee as “the face of the business”

If an employee can leverage unique skills, knowledge, or relationships gained from working for an employer, a court may find that the employer has a reasonably protectable business that justifies a non-compete agreement.

Courts will also review the terms of a non-compete to ensure it has a reasonable geographic, temporal, and business scope. Courts may find non-competes reasonable regarding geography and business scope if they only seek to prohibit an employee from competing in the geographic regions and industries where the employer does business.

The reasonableness of a non-compete agreement’s duration will depend on factors such as:

The consideration supporting the agreement – Courts may find longer non-competes reasonable for highly compensated employees.
The risk to the employer – A court may find the duration of a non-compete agreement reasonable if necessary to allow the employer to secure its protectable business interests from future competition.
Economic hardship on the employee – Courts may not support non-compete agreements if their duration jeopardizes the employee’s finances due to their inability to work in their industry or profession.

Questions About the Pros and Cons of Non-Compete Agreements? Contact Our Nashville Employment Attorneys Today

If you need help understanding an employer’s proposed non-compete agreement or evaluating the fairness of an existing one, our Nashville employment lawyers can review the terms and discuss how negotiations or modifications might benefit you in the long term. Call or contact the Employment and Commerce Law Group today for a free consultation.