Earlier this month, the North Carolina Business Court addressed important issues surrounding noncompete and nondisclosure agreements, providing valuable insights for employers navigating these complex areas of employment law. 

In Atkore International Inc. v. Dinkheller, Atkore International Inc. sought to enforce a noncompete agreement against its former employee, Keith D. Dinkheller, who joined National Pipe & Plastics Inc., shortly after leaving Atkore. Atkore is a manufacturing company with its principal place of business in Illinois and is authorized to do business in North Carolina, according to the court’s opinion. 

The court found that the noncompete agreement was overly broad and unenforceable due to its extensive time, scope, and geographic restrictions. Specifically, the agreement's definition of "Company" included Atkore’s affiliates and subsidiaries, which the court deemed too expansive. Additionally, the geographic scope covered the entire United States, further contributing to its unenforceability.

For employers, this case highlights the importance of drafting noncompete agreements with clear and specific limitations that are directly related to the employee’s role. To be enforceable, these agreements must protect legitimate business interests without placing unreasonable limits on an employee’s ability to work elsewhere. Employers should ensure that the duration and geographic scope of noncompetes are reasonable, directly tied to the employee’s role, and aligned with the company’s operations.

Nondisclosure Agreements: A Different Standard

Nondisclosure agreements, often referred to as confidentiality agreements, are treated differently by the courts. In contrast to the noncompete agreement, the court declined to dismiss Atkore’s claim regarding the misappropriation of trade secrets. The court found that Atkore sufficiently identified its trade secrets, which included confidential information contained in a presentation that the former employee allegedly disclosed publicly. The court emphasized that nondisclosure provisions are not subject to the same level of scrutiny as noncompete provisions, as they are designed to protect confidential information rather than restrain trade. 

This distinction is crucial for employers. While noncompete agreements are subject to judicial scrutiny, courts are more likely to uphold nondisclosure provisions when they are clearly written and aimed at protecting legitimate trade secrets. Employers should ensure that their agreements are thorough and clearly define what constitutes confidential information.

Practical Takeaways for Employers

• Noncompete agreements require precision: To withstand legal scrutiny, noncompete agreements must be narrowly tailored in geographic scope, time, and the specific activities restricted. Courts are unlikely to enforce overly broad or blanket restrictions.
   
• Confidentiality agreements remain powerful: Well-drafted nondisclosure agreements continue to provide meaningful protection for proprietary and sensitive business information. Unlike noncompete agreements, these agreements typically face less judicial scrutiny in court, provided they are reasonable and clearly articulated.
   
• Review and update agreements regularly: The law surrounding these agreements is evolving, particularly in states like North Carolina where courts closely scrutinize restrictive covenants. Employers should review their employment agreements regularly — especially following changes in an employee’s role, promotions, or organizational restructuring — to ensure continued enforceability.

The Atkore case serves as a reminder for employers to regularly review their noncompete and nondisclosure agreements. By ensuring these agreements are well-drafted and compliant with current legal standards, employers can better protect their business interest and mitigate legal risks. 

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