In order to be enforceable in North Carolina, post-employment covenants not to compete must be reasonable with respect to both duration and geographic scope. Most covenants address the scope issue by listing a specific geographic territory where the employee is barred from competing during the restricted period. According to a new North Carolina Court of Appeals decision, employers may be able to use less specific territorial restrictions in their non-compete agreements. The court reversed a lower court decision dismissing an attempt by a machine tooling company to enforce a six month non-compete provision against a former Vice President. The agreement prohibited him from working for a competitor in “areas in which the Company does business.” The parties agreed that this description covered all of North and South America.
The trial court concluded that this scope, as a matter of law, was unreasonably broad. The Court of Appeals reversed this decision, and remanded the case for factual determinations on the reasonableness of the restriction. According to the court, valid non-compete agreements can tie their geographic territory to where the employer’s customers are present, or where the company otherwise does business. In this case, the broad scope of this agreement was not automatically invalid, because of the very short duration of the agreement. Employers drafting non-compete covenants should balance the time and territory contained in the restrictions in order to create the best chance of later enforcing the agreements.