Should Employers Waive Non-Competes

Posted in on March 13, 2014

Employers did you know that waiving or scaling back a non-competition or non-solicitation restriction for departing employees to reduce the cost of severance may come back to haunt you? It is not unusual in this difficult economic time that companies are looking for ways to save money it pays to departing employees by either waiving or reducing the scope of non-competition or non-solicitation agreements. On its face it seems like a good idea; in exchange for releasing departing employees from a non-compete or a non-solicitation clause, the employees give up a percentage of their severance, everybody wins, right? Wrong. Waiving or reducing departing employees’ obligations pursuant to their non-competition and non-solicitation clauses will expose the company to selective enforcement issues in the future. In order for a non-competition or non-solicitation provision to be enforceable, it must, among other things, be necessary to protect an employer’s legitimate business interest, such as confidential information, trade secrets, and/or good will. These clauses can not be used to prevent ordinary competition. Therefore if a future employee leaves the company and seeks to set aside their non-competition or non-solicitation clause sighting the company’s former practice of doing so for other similarly situated employees, the company may have a difficult time establishing that these restrictions are necessary to protect legitimate business interests because the prior practice gives the appearance of the company picking and choosing who it is seeking to restrain from competition.

Before you decide to waive or reduce any restrictive covenant in an employment agreement contact Baker, Braverman & Barbadoro, P.C. to make sure you are not making a decision to save your company money in the short run, but will inevitably cost twice as much.