What is a Non-Competition Agreement?
Non-compete agreements are employment contracts that prevent employees from working with a competitor or from starting a competing business for a prescribed period after their employment with their employer is terminated. The length of time the contract lasts and its scope, in terms of the markets and businesses in which an employee cannot work, is determined by the contract. The law regarding non-compete agreements is addressed with some specificity under the Idaho Statutes. If you are not located in Idaho, you should consult a local attorney familiar with the laws in your state to be sure you understand all of your rights and obligations under your specific contract.
A non-compete agreement generally will prevent an employee from working with a direct competitor after the end of employment. Typically, the agreement will state that the employee is not allowed to work with a direct competitor for a certain amount of time after the employment with the company is over. A direct competitor often is defined as a company that competes with the employer in the marketplace in which the employer does business. An employee also may be prohibited from forming his or her own business that competes with the employer . An employer will use a non-compete agreement to protect its business interests and trade secrets. An employer wants to know that by hiring an employee, that person will not be privy to confidential company information and use that information to start a business that competes with the company.
Employers will want to make sure that the terms of a non-compete agreement are reasonable. Whether a company has a valid and enforceable agreement generally boils down to these fundamental factors: Because the law in every state is different from one another, the terms of a non-compete agreement may not be enforceable in every jurisdiction. In Idaho, for instance, the statutes governing non-compete agreements state the following:
The agreement must be made at the beginning of the employment. If you are offered a new job and you are asked to sign a non-compete agreement and it is not included as part of the original offer of employment, there may be a question as to whether such an agreement is enforceable. Also, if you already work for a company and are presented with a non-compete agreement, there is a question as to whether the agreement is valid. The question is whether you received adequate consideration for signing the non-compete. In other words, did you get something in exchange?
Idaho’s Unique Approach to Non-Competition Provisions
Idaho has a unique stance on non-compete clauses, different from most other states. Their laws and enforcement have some nuances that make them interesting for employers and employees alike.
Most prominently, Idaho has a statute (Idaho Code section 44-2706) that actually renders even non-compete agreements that are ancillary to the sale of business assets unenforceable if the buyer is not engaged in a trade or profession. This statute appears to be hostile towards all non-trade- or profession-based non-competes. The Idaho Legislature made the criminalization of these non-competes even more apparent when, earlier this year in an unenforced, but "change-their-law-formula," it passed prohibiting non-solicitation agreements to protect general goodwill in Idaho for all but the protection of trade secrets. If it cares so little for the protection of trade secrets – a powerful type of intellectual property – imagine how it feels about ordinary non-compete agreements!
If you are an Idaho Employer considering the use of a non-compete, you need to pay close attention to this issue. You can still be guarded with your confidential information and trade secrets, but the blanket protection that a non-compete agreement would uniquely offer could be eliminated if you’re not in a trade or profession.
This law is fairly new, but it seems to be gaining traction and being enforced judicially. Employers should be advised against investing heavily in a non-compete program in Idaho to preserve customer relationships, confidential business practices, or trade secrets absent careful study of their claim and the development of a strategy to get around the law, if necessary. For now, Idaho employers will need to find other creative solutions to protect their customer relationships, their confidential business practices, their information, or trade secrets in Idaho.
There may also be questions about how non-compete agreements entered into before the law was enacted and might be applied in future cases. Employers would be well served by reaching out to competent counsel experienced in this area to study their case to help determine how their existing non-competes might be applied, avoided, or rewritten to protect the average business from unfair competition.
Non-Competition Agreements and Their Enforceability in Idaho
Consequently, Idaho courts will only enforce a non-compete that is:
- (1) Necessary for the employer’s legitimate business interest;
- (2) Designed to protect that interest;
- (3) Reasonable in geographic scope, duration, and activity; and
- (4) Supported by consideration which is "reasonably related to the interests of the employer and the needs of the employee for his livelihood."
The absence of any of these factors is grounds for voiding a non-compete agreement.
Let us take each of these issues in turn.
As to whether an agreement is necessary for the employer’s legitimate business interest, the standard for Idaho courts is that "a compelling state interest must exist" before a non-compete agreement will be upheld in court. Part of this compelling state interest is protecting customer relationships.
As to the second factor, and the third factor concerning the reasonableness of the duration of the non-compete agreement, the Idaho Supreme Court has indicated that the analysis is similar to that undertaken by courts when ruling on motions for injunctive relief in actions to enforce non-compete agreements. Id. at 449. "We determine ‘the reasonableness of time by reference to the facts of a particular situation’ and ‘will not void covenants which our review of the record shows are reasonable based upon the facts presented.’" Id. For example, non-compete agreements in Idaho that restrict employment for a period of six to twelve months or prohibit employment that the former employee’s new employer generates from a local account are likely reasonable.
As to the inability of the former employee to earn a livelihood, the test is whether the former employee will be left without the means to earn a livelihood if the court upholds the non-compete agreement. If it is determined by the court that the former employee has been left with no means to earn a livelihood, it may be appropriate to narrow the restrictive covenant so that it only applies to "situations where it is necessary to protect the employer’s legitimate business interests." Id. at 452.
How Restrictions and Limitations Work in Idaho
Limitations and Restrictions in Idaho (Applicable to Employees or Independent Contractors) *
Without a legitimate business interest to protect, we will not enforce non-competition agreements that would require you to stop working in your area of expertise.
Idaho limits non-competes to one year, and does not allow non-competes for employees who are under 18 years of age or who earn less than $75,000. Both of these provisions diminish the need for a basic non-compete agreement. Only certain employment sectors are allowed either continuous or perpetual non-competes.
BYU – Idaho non-competes may not exceed two years, but may be entered by professors, instructors, teachers, deans, or presidents.
Idaho Conference non-competes are limited to three years, but it is the only profession where the non-compete may last longer than 2 years.
For physicians and surgeons, a party to a physician employment and non-competition agreement must not agree to a period of restricting competition of more than 18 months unless he or she is a shareholder of the employer corporation that employs the physician. In Idaho the prohibition against these types of non-competes do not apply to current or former partners, shareholders or members of a partnership, corporation or professional service organization.
Challenging Your Non-Competition Agreements in Idaho
Employees and employers who need to go to court in Idaho to challenge non-compete agreements must file a lawsuit asking the court to declare the non-compete unenforceable. In such a lawsuit, the employee may ask the court for an injunction to prevent the employer from trying to enforce all or part of the non-compete.
Idaho court decisions have long recognized that where a non-compete agreement cannot be made legally enforceable by "blue penciling," the non-compete should be declared void and unenforceable.
Idaho courts have also made clear that what may be valid for one employee, in view of the employer’s industry, may not be valid for another employee. A district court may determine that a non-compete is valid and enforceable with respect to one employee but invalid and unenforceable with respect to other employees . For a non-compete to be valid and enforceable, the employer’s interests must be balanced against the social costs to the employee.
The viability of any challenge to a non-compete will also depend on the particular facts of the case. The legal sufficiency of a non-compete may also best be decided on a motion for summary judgment. Each case will turn on a variety of factors, such as the scope of the non-compete, including the activity at issue, terms, and duration and geographic scope of the restrictions.
Challenging the enforceability of a non-compete in the United States District Court for Idaho will likely result in a decision by a federal judge based on Idaho law because most cases are based on diversity jurisdiction given that parties are usually citizens of different states and the alleged damages exceed $75,000. (Idaho is in the Ninth Judicial Circuit). Federal judges deciding Idaho cases are bound to follow Idaho law.
How to Draft Your Non-Compete Agreement in Idaho
When drafting a non-compete agreement, there are some rules for compliance with Idaho law. Although benefits that the employee may receive in exchange for signing a non-compete tend to be modest in Idaho, a few Idaho state laws should be considered.
The non-compete has to be signed, or at least the material terms proposed, before the employee works with information the employer considers confidential, such as customers, and prohibits competition in a profession or trade.
The general rule is:
A noncompete "covenant", along with a "forfeiture provision (meaning a loss of some entitlement)" is not enforceable if:
- The contract is one of an employee or independent contractor with:
- private sector employers of less than 50 employees; or
- private sector employers with annual revenues or volume of business less than $6 million;
- The employer violates or has violated the "minimum employment terms" provisions of Idaho Code § 44-2005;
- The employee or independent contractor is a "low-wage employee". A "low-wage employee" means an employee who earns wages that are equal to or less than the minimum wage for the state of Idaho. (there is an exception in health care);
- The noncompete restricts competition for more than 18 months after termination; or
- The time, geographic, or substantive restrictions on competition are greater than necessary (strangely, Idaho Code § 44-2704 does not contain guidelines for determining "greater than necessary").
To obtain a conclusive presumption that a non-compete is enforceable, the employer also must provide notice of a belief that the employee has violated the agreement, and a 60-day period to cure the violation.
Employers have to pay the employee "reasonable compensation" for the non-compete, which can be a combination of an hourly rate, salary, stock options, equity interest, or other "valuable benefit."
Alternatives to a Non-Competition Agreement
Alternatives to Traditional Non-Compete Agreements in Idaho
As a matter of law, there are no non-compete agreements in Idaho. Idaho’s general stance on employee movement is that freedom to work for the competition should not be fettered. So what are employers supposed to do? In addition to traditional trade secret protections, non-disclosure agreements can be another helpful tool to keep your business from being harmed. While they don’t prevent employees from working for competitors, they can at least keep the trade secrets and confidential information protected.
As outlined in the article "What Employers Need to Know About Non-Competition Agreements," Matthew K . Bechtel and Lisa A. Yount discuss the possibility of non-solicitation agreements as well:
Another type of restrictive covenant often used is a non-solicitation agreement. Under a non-solicitation agreement, an employee is not prohibited from competing with the former employer. Instead, he or she simply cannot solicit the clients or customers of his or her former employer or solicit fellow employees of the former employer for employment with the new employer. Non-solicitation agreements are generally easier to enforce and will often be enforced by courts when reasonable in nature.