United States: Track More Than Case Law When Drafting A Noncompete Covenant

No doubt, ensuring that any agreement is consistent with judicial precedent is critical if you want to enforce that agreement at some point in the future. Nevertheless, merely incorporating precedential concepts or language into an agreement may not be enough to get your client to where it wants to be, and may even result in your client being put in a more difficult position than if the precedent had been ignored. Nowhere is this more apparent than when a company seeks to draft and implement a standard and seemingly straightforward noncompete covenant.

In Kroger v. The Stop & Shop Companies, Inc., Stop & Shop sought to enforce a covenant not to compete against Mr. Kroger that expressly precluded him from working for any other supermarket east of the Mississippi River – unless it was in Florida, Georgia, Alabama, Mississippi or Louisiana. At the time this case was litigated, however, Stop & Shop only did business in New England, New York and New Jersey – and had no concrete plans to expand into other states. As a result, the Supreme Judicial Court ruled that the noncompete covenant was overbroad and refused to enforce it against Kroger outside of New England, New York and New Jersey.

As a result of this and other similar decisions, many noncompete agreements employ language such as the following:

At first glance, the italicized language seems perfect, as it certainly comports with the Supreme Judicial Court's ruling in Kroger. However, if you start thinking like a litigator, you can see that the geographic limitation provision may not necessarily eliminate disputes over where a former employee can and cannot work for a competitor. For instance, if the company has offices in Boston, Providence and New York City, does that mean that the employee cannot compete anywhere in Massachusetts, Rhode Island and New York? What about Connecticut, western Massachusetts or upstate New York?

Obviously, the answer to these questions could vary wildly depending upon what the company does and how it operates. As such, the next time you are drafting a noncompete agreement, do not just follow precedent. Think about how that precedent is implicated in the context of your company's business. Doing so will likely result in a noncompete agreement that is much more certain and predictable.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.