When Does a Noncompete Agreement Expire?
Noncompete agreements are contracts commonly used by employers to restrict employees from engaging in competitive activities after leaving their employment. These agreements aim to protect the employer’s business interests, such as trade secrets, confidential information, and client relationships. However, it’s crucial for both employers and employees to understand the expiration of noncompete agreements and the factors that determine their enforceability. In this article, we will delve into the various aspects that define the duration and expiration of noncompete agreements.
Duration of Noncompete Agreements
Noncompete agreements typically have a defined duration that outlines the period during which the employee is bound by its restrictions. The duration can vary depending on jurisdiction and the specific terms negotiated between the employer and employee. While the specific time frames may vary, noncompete agreements often range from six months to two years. However, some agreements may have longer durations in exceptional cases, such as when protecting trade secrets or proprietary information of substantial value.
Negotiated Terms
The terms of a noncompete agreement are negotiable between the employer and employee, as long as they adhere to legal limits and considerations. The negotiated terms may include the duration of the agreement, geographical limitations on competition, and the scope of activities prohibited during the restricted period. Employers and employees must ensure that the agreement’s terms strike a reasonable balance between protecting the employer’s legitimate interests and allowing the employee to pursue gainful employment.
State Laws and Jurisdiction
The expiration and enforceability of noncompete agreements are heavily influenced by state laws and jurisdiction. Some states may impose restrictions on the duration of noncompete agreements, while others may have more lenient or specific requirements. It’s important for both employers and employees to familiarize themselves with the laws of the jurisdiction in which the agreement is being enforced to determine the validity and duration of the noncompete clause.
Tolling and Extensions
In certain situations, the expiration of a noncompete agreement can be extended or tolled. Tolling refers to the suspension or pause in the running of the contractual period. For instance, if an employee is found to have breached the agreement by competing with the former employer during the restricted period, the time spent in violation may extend the overall duration of the noncompete agreement. Employers may also seek extensions if they can establish continued harm or threats to their legitimate business interests.
Limitations on Enforceability
While noncompete agreements are legally binding contracts, their enforceability may be limited by certain factors. Courts often scrutinize these agreements to ensure they are reasonable in terms of duration, geographic scope, and the employee’s access to confidential information. If the agreement is deemed overly restrictive or too burdensome on the employee, a court may modify or refuse to enforce it.
Conclusion
Noncompete agreements serve as a means to protect employers from potential unfair competition and safeguard their valuable business assets. The expiration of these agreements is determined by various factors such as negotiated terms, state laws, jurisdiction, tolling, and extensions. It is essential for both employers and employees to consult legal professionals and understand the specific regulations governing noncompete agreements in their respective jurisdictions to ensure compliance and fair treatment.
Remember, this article provides general information and is not intended as legal advice. For specific guidance regarding noncompete agreements, it is advisable to consult an attorney familiar with employment laws in your jurisdiction.
Video Transcript
When Does a Noncompete Agreement Expire?
It expires whenever it says it does. So it might say it expires after two years, so let’s start with that. But if it says it expires after 40 years, that may not be enforceable under the law. And so a court may determine that it expired before that.
There are courts that will apply what is called the blue pencil doctrine. And what that basically says is imagine a judge with a blue pencil takes a look at the contract and that the noncompete contract says, “The employee cannot compete for 40 years.” And if the judge knows that that is too long of a period, only two years is enforceable in that state, the judge would strike out 40 years and write with a blue pencil two years instead. That is an example of the blue pencil doctrine. It basically means the judge can modify the agreement to an enforceable limit or an enforceable period of time.
So, if in the analysis, we first look to, “What does the agreement say?” And if that is too long, we look to, “Does the court apply the blue pencil doctrine in your state?” and if the answer is yes, then it is probably going to be the maximum allowed under the law in your state. If the court does not apply the blue pencil doctrine, then that entire provision may be stricken from the contract by a court because it may be a violation of public policy and thus unenforceable and void. In that case, it wouldn’t be limited to two years. It would just be stricken.
Summary
So we look to three things: what does the contract say, what is enforceable in your jurisdiction, and then does your jurisdiction have the blue pencil doctrine, or does it just completely void provisions that are too broad or not enforceable?
Another scenario where a noncompete agreement might expire is where the company is terminated. So if you have an agreement between two parties and one of the parties is a company that dies, well, with that party no longer there to enforce the agreement, the agreement effectively dies as well. That can be the case with people who pass away, but sometimes their estates keep the right to enforce contracts that existed prior to the person’s passing. So with companies terminating, usually, the contracts terminate as well. With people who terminate or pass away, it depends on the circumstances and state law.
Conclusion
All right. Well, thank you for joining me here today. If you would like more information on me, you can find it at aaronhall.com. If you would like to follow us on other platforms, just search for Aaron Hall, Attorney, on the various other social media platforms. And if you have other questions, I would be happy to see about answering them in future YouTube live videos. Feel free to add them in the comments below. It was great talking with you today. I hope this was helpful, and let’s stay in touch. You can sign up at aaronhall.com/free if you would like to receive those exclusive training videos for people who are trying to avoid common problems in small businesses. Have a great day.
