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North Carolina Courts Defeat Another ‘Overbroad' Noncompete

    Client Alerts
  • November 18, 2019

In recent years, North Carolina courts have become increasingly resistant to enforcing noncompetition and non-solicitation restrictions they view as insufficiently narrowed to the specific competitive threat presented by the departed employee. Earlier this month in an unpublished decision, the North Carolina Court of Appeals again refused to rescue restrictions that appeared overbroad when compared to the employee’s actual work for the company.

In Andy-Oxy Co. v. Harris, the defendant signed a two-year post-employment covenant that prohibited him from (1) providing services to a competitor within a 22-county territory and (2) soliciting any company that had been a customer of the plaintiff in that territory in the previous year. When the defendant went to work for a competitor, the plaintiff obtained a preliminary injunction preventing him from violating the terms of the restrictive covenants. 

The North Carolina Court of Appeals disagreed, dissolving the injunction. The court noted that restrictive covenants in employment are disfavored under North Carolina law and are therefore strictly interpreted. In this case, the noncompete was fatally overbroad because it prevented the defendant from working for a competitor in any capacity, not just from doing the type of work he performed for his prior employer. In essence, the restriction can only prevent the former employee from working in an identical or very similar job to that he held with the previous employer.

Similarly, the customer non-solicitation restriction was overbroad and invalid because it prohibited the defendant from working with any customer of the former employer, not just those with whom he worked while employed. The geographic limitations on both covenants did not rescue them from being considered overbroad.

In our experience, many of these issues with overbroad covenants result from employers using form documents prepared for use in states other than North Carolina. In addition to the narrow view taken by North Carolina courts, this state also follows the “blue pencil” rule, meaning that courts will not rescue an overbroad noncompete by reducing its terms. The covenants generally stand or fall based on the language used. Because of these factors, North Carolina employers seeking enforceable restrictions need to pay careful attention to matching the restrictions to the specific competitive threat posed by that employee.