Covenants Not to Compete in North Carolina

Disputes between businesses and former employees frequently arise when an employee begins working for a competitor after leaving their previous job. In the absence of an agreement restricting employment, North Carolina law allows a former employee to work for any employer, even a direct competitor. However, employers can protect their interests through covenants not to compete (non-compete agreements), which place restrictions on an employee’s future employment after leaving the company.

For a covenant not to compete to be enforceable in North Carolina, it must meet several legal requirements: (1) it must be in writing; (2) it must be part of the employment contract; (3) it must be based on valuable consideration; (4) it must be reasonable in terms of time and territory; and (5) it must be designed to protect a legitimate business interest. If any of these requirements are not met, the covenant will likely be unenforceable in court.

Key Requirements for an Enforceable Covenant Not to Compete

1. In Writing

A non-compete agreement must be in writing to be enforceable in North Carolina. There is no specific form required, but the agreement must be written and signed by the employee. Verbal agreements not to compete are not enforceable.

2. Part of the Employment Contract

The non-compete agreement must be part of the employee’s original employment contract or tied to a subsequent contract with new terms of employment. If the agreement is entered after the employee has begun work and there is no additional consideration (e.g., a promotion, bonus, or salary increase), courts may find the agreement void. It is best practice to have a non-compete agreement signed before employment begins to avoid disputes about its validity later.

3. Valid Consideration

For a covenant not to compete to be enforceable, the employee must receive something of value in exchange for agreeing to the restrictions. The most common form of consideration is the offer of new employment. If the agreement is signed after employment has already begun, additional consideration, such as a raise, bonus, or extra benefits, must be provided to the employee.

4. Reasonable Time & Territory

The reasonableness of a non-compete agreement in terms of time and territory is determined by six key factors:

• The geographical scope of the restriction
• The area assigned to the employee
• The area where the employee actually worked or was subject to work
• The area where the employer operates
• The nature of the business involved
• The nature of the employee’s duties and knowledge of the employer’s business

Courts will examine these factors to ensure that the agreement is not overly broad. For example, restricting a low-level employee from working with a competitor in another state may be seen as unreasonable, whereas a high-level executive with extensive knowledge of the business may be subject to broader restrictions.

5. Legitimate Business Interest

A covenant not to compete must be tied to a legitimate business interest. For example, a company may restrict a former sales executive from working with a competitor in the same industry, but they cannot restrict an employee from working in an unrelated field or a different geographical market that does not directly impact the company’s business.

Non-Solicitation Agreements

Non-solicitation agreements are closely related to covenants not to compete but are often broader in scope. These agreements prevent former employees from soliciting customers or employees of their former employer. Because they are focused on protecting business relationships rather than restricting general employment, non-solicitation agreements can be enforced over longer time periods and wider geographical areas.

Legal Guidance for Non-Compete and Non-Solicitation Agreements

The best time to seek legal advice about covenants not to compete and non-solicitation agreements is during contract negotiations. At Ferikes Bleynat & Cannon, our Business Dispute Lawyers understand the balance between protecting an employer’s business interests and allowing employees to pursue future employment opportunities. Our attorneys stay informed about appellate court decisions regarding non-compete agreements and work to draft enforceable agreements that reduce the risk of future litigation.

If you need assistance drafting or enforcing a covenant not to compete or a non-solicitation agreement, contact Ferikes Bleynat & Cannon today for expert legal guidance.