Non-Compete Laws North Carolina - Smith Anderson

1 View the online version at Non-Compete Laws: North Carolina ZEBULON Anderson , Smith , Anderson , BLOUNT, DORSETT, MITCHELL & JERNIGAN, , WITH PRACTICAL LAW LABOR & EMPLOYMENT. A Q&A guide to Non-Compete agreements Locksmiths: 21 Admin. Code (e)(5). between employers and employees for private Title 21, Section (e)(5) of the North Carolina Administrative Code governs non-solicitation and Non-Compete agreements for employers in North Carolina . This Q&A addresses locksmiths. enforcement and drafting considerations for 2. For each statute or regulation identified in Question 1, iden- restrictive covenants such as post-employment tify the essential elements for Non-Compete enforcement and covenants not to compete and non-solicitation any absolute barriers to enforcement identified in the statute or of customers and employees. Federal, local regulation.

2 Or municipal law may impose additional or GENERAL STATUTE AND REGULATION. different requirements. Answers to questions can Contracts that restrain trade or commerce are generally illegal ( be compared across a number of jurisdictions Gen. Stat. Ann. 75-1). (see Non-Compete Laws: State Q&A Tool (http:// Agreements limiting a person's right to do business in North Carolina must be both: )). In writing. OVERVIEW OF STATE Non-Compete LAW Signed by the party agreeing not to do business. ( Gen. Stat. Ann. 75-4.). 1. If non-competes in your jurisdiction are governed by statute(s) or regulation(s), identify the state statute(s) or INDUSTRY- OR PROFESSION-SPECIFIC STATUTE OR REGULATION. regulation(s) governing: Attorneys: Prof'l Conduct Non-competes in employment generally. Non-competes in employment in specific industries or A lawyer cannot offer or make: professions.

3 A partnership, shareholders, operating, employment or other similar type of agreement that restricts the right of a lawyer to GENERAL STATUTE AND REGULATION practice after termination of the relationship, except an agreement concerning benefits upon retirement. Chapter 75 of the North Carolina General Statutes generally prohib- its contracts that restrain trade or commerce and imposes statutory An agreement restricting a lawyer's right to practice as part of a requirements for permissible restraints. settlement between private parties. ( Prof'l Conduct ). INDUSTRY- OR PROFESSION-SPECIFIC STATUTE OR REGULATION. Attorneys: of Prof'l Conduct Locksmiths: 21 Admin. Code (e)(5). Rule of the North Carolina Rules of Professional Conduct governs Locksmiths cannot directly solicit customers in violation of a non- non-competes in the legal industry.

4 Compete agreement (21 Admin. Code (e)(5)). 2015 Thomson Reuters. All rights reserved. Non-Compete Laws: North Carolina ENFORCEMENT CONSIDERATIONS preliminary injunction against a discharged employee to enforce a Non-Compete agreement. The court denied the motion, but only 3. If courts in your jurisdiction disfavor or generally decline to because the scope of the agreement was not reasonable. (345 enforce non-competes, please identify and briefly describe the 692, 696 ( Ct. App. 1986)). key cases creating relevant precedent in your jurisdiction. If, however, the termination of employment is a material breach of Non-competes are disfavored in North Carolina (Med. Staffing Net- contract, then an employee's performance under the Non-Compete work v. Ridgeway, 670 321, 327 ( Ct. App. 2009)). may be excused (Millis Constr. Co. v. Fairfield Sapphire Valley, 358.)

5 566, 569-70 ( Ct. App. 1987)). However, courts enforce non-competes that are: In writing. BLUE PENCILING NON-COMPETES. Part of an employment contract. 6. Do courts in your jurisdiction interpreting non-competes Based on valuable consideration (see Question 8). have the authority to modify (or "blue pencil") the terms of the Reasonable about time and territory (see Questions 9 and 10). restrictions and enforce them as modified? Designed to protect a legitimate business interest. North Carolina courts may modify or blue pencil an unreasonable (Copypro, Inc. v. Musgrove, 754 188, 191-92 ( Ct. App. 2014).) Non-Compete restriction by deleting severable parts of the agreement to make the restriction reasonable. However, courts cannot otherwise North Carolina courts refuse to enforce non-competes that are revise or rewrite non-competes, and Non-Compete restrictions that against the state's public policy (United Labs.

6 , Inc. v. Kuykendall, 370 are too broad are not rewritten or enforced. (Whittaker Gen. Med. 375, 380 ( 1988)). Corp. v. Daniel, 379 824, 828 ( 1989); Hartman v. Odell LEGITIMATE BUSINESS INTEREST & Assocs., 450 912, 920 ( Ct. App. 1994).). Employers have a legitimate business interest in protecting their CHOICE OF LAW PROVISIONS. unique assets, including: 7. Will choice of law provisions contained in non-competes Customer contacts. be honored by courts interpreting non-competes in your Confidential information. jurisdiction? However, employers cannot protect their interests in a way that causes Choice of law provisions in non-competes generally are enforced unreasonable hardship for employees. (Copypro, 754 at 192.) (Bueltel v. Lumber Mut. Ins. Co., 518 205, 209 ( Ct. App. Non-competes should be narrowly tailored to protect employers' 1999)).

7 However, North Carolina courts do not enforce a choice of law legitimate business interests. Non-competes that prohibit employees provision if: from working in a capacity that is unrelated to the employees' former The law is contrary to North Carolina 's public policy. job are overly broad and unenforceable. (Copypro, 754 at 192;. North Carolina has a greater interest in the determination of the Horner Int'l Co. v. McKoy, 754 852, 857 ( Ct. App. 2014);. particular issue. VisionAIR, Inc. v. James, 606 359, 362 ( Ct. App. 2004).). North Carolina 's law would apply in the absence of an effective Customer-based restrictions cannot extend beyond the customers choice of law provision. with which the former employee had business contact (Farr Assocs. v. (Szymczyk v. Signs Now Corp., 606 728, 732 ( Ct. App. 2005).). Baskin, 530 878, 882-83 ( Ct. App.))

8 2000)). For more on choice of law provisions, see Practice Note, Choice of Law North Carolina courts might not enforce non-competes that prohibit and Choice of Forum: Key Issues ( ). direct or indirect competition because they restrict too many activities (VisionAIR, 606 at 362-63). REASONABLENESS OF RESTRICTIONS. 4. Which party bears the burden of proof in enforcement of 8. What constitutes sufficient consideration in your jurisdiction non-competes in your jurisdiction? to support a Non-Compete agreement? The party seeking to enforce a Non-Compete has the burden of prov- Under North Carolina law, sufficient consideration for a Non-Compete ing that the agreement is reasonable (Outdoor Lighting Perspectives includes: Franchising, Inc. v. Harders, 747 256, 264 ( Ct. App. 2013)). The promise of new employment (Farr Assocs., 530 at 881). A change in the terms and conditions of employment, including: 5.

9 Are non-competes enforceable in your jurisdiction if the araise in pay;. employer, rather than the employee, terminates the employ- a new job assignment;. ment relationship? a promotion; or Courts are likely to enforce reasonable non-competes when the a bonus. employer terminates the employment relationship. For example, (Whittaker, 379 at 827; Hejl v. Hood, Hargett & Assocs., 674. in Masterclean of , Inc. v. Guy, an employer filed a motion for a 425, 428-29 ( Ct. App. 2009).). 2 2015 Thomson Reuters. All rights reserved. Non-Compete Laws: North Carolina While continued at-will employment alone is insufficient consider- To demonstrate the reasonableness of the geographic restriction in a ation, an offer of continued employment for a specified duration may Non-Compete designed to protect customer relationships, an employer be sufficient consideration (Cox v.)

10 Dine-A-Mate, Inc., 501 353, must show: 356 ( Ct. App. 1998); Amdar, Inc. v. Satterwhite, 246 165, Where its customers are located. 167 ( Ct. App. 1978)). The extent of its business in those locations. Why the restriction's geographic scope was necessary to protect 9. What constitutes a reasonable duration of a Non-Compete restriction in your jurisdiction? those customer relationships. (Kinesis, 652 at 294; Hartman, 450 at 917.). North Carolina courts consider time and territory together when determining whether a Non-Compete is reasonable, so that a longer 11. Does your jurisdiction regard as reasonable non-competes restricted duration is acceptable when the geographic scope of the that do not include geographic restrictions, but instead in- restriction is small and vice versa (Kinesis Advertising, Inc. v. Hill, 652 clude other types of restrictions (such as customer lists)?