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Enforcing noncompete agreements can be tricky

On Behalf of | Nov 7, 2022 | Business Law |

Many companies in Missouri and around the country use noncompete agreements and noncompete clauses to protect them against unfair competition from former employees. Noncompete agreements have become quite commonplace in recent years, but there was a time when they were rarely signed unless workers knew trade secrets or had customers that would remain loyal to them. This increased popularity has led to greater official scrutiny, and legislation has been implemented or introduced in several states that would ban noncompete agreements completely.

Noncompete agreements in Missouri

Lawmakers in Missouri have not passed a law that deals specifically with noncompete agreements, but the state’s Supreme Court has provided some guidance. In a 2012 case involving a security guard who left his employer to start his own company, the justices ruled that noncompete agreements are only enforceable in Missouri if the restrictions they contain are kept to a minimum. The defendant in the case signed an agreement that prevented him from contacting his employer’s customers for one year, which the court deemed excessive. The justices indicated they would have ruled differently if the employer had been more careful when drafting the noncompete agreement. If the contract placed restrictions on contacting only customers the plaintiff actually knew and worked with, it may have stood.

Federal intervention

The federal government has indicated that it will take action to curb noncompete agreements if states do not do enough. In a July 2021 executive order, President Biden asked the Federal Trade Commission to set strict standards for noncompete agreements. The Biden administration wants state business laws to prevent workers from being unduly hampered when they switch jobs, and it has hinted that the FTC will use its rulemaking authority to force change if state lawmakers fail to act.

Walking a fine line

Companies that draft noncompete agreements must choose their words carefully as these contracts are often challenged in court. When restrictions must cover a designated area or last a certain length of time, the specifics should be examined carefully to make sure that the limitations are demonstratively reasonable. Until clear guidance is provided, caution is probably the wisest approach.