Are non-compete agreements enforceable in Tennessee?
It depends. Generally speaking, non-compete agreements, also called ‘covenants not to compete’, are disfavored in Tennessee. See Hasty v. Rent-A-Driver, Inc., 671 S.W.2d 471 (Tenn. 1984). Courts interpret these agreements strictly in favor of the employee, in part because the agreement is a restraint on trade. Having said that, courts will uphold non-compete agreements if there is a legitimate business interest to be protected and the agreement sets reasonable time and territorial limitations. Id.
What makes a non-compete agreement reasonable?
When deciding whether a non-compete agreement is reasonable, Tennessee courts will consider the following relevant factors:
1. the consideration supporting the agreement;
2. the threatened danger to the employer in the absence of the agreement;
3. the economic hardship imposed on the employee by the agreement; and,
4. whether the agreement is against the public interest.
Additionally, the time and territorial limitations must be no greater than necessary to protect the employer’s legitimate business interest. In other words, a company cannot expect a court to uphold a non-compete agreement which purports to prevent an employee from ever taking a job with another company in the same general line of work.
Does the employer have a legitimate business interest which deserves protection?
Obviously, employers cannot restrain ordinary competition. Therefore, employers must show that without the non-compete agreement, the employee would gain an unfair advantage in future competition with the employer. Id.
Courts consider the following to determine whether an employee would have an unfair advantage:
1. whether the employer provided the employee with specialized training;
2. whether the employee is given access to trade or business secrets or other confidential information; and,
3. whether the employer’s customers tend to associate the employer’s business with the employee due to the employee’s repeated contacts with the customers on behalf of the employer.
Of course, an employer does not have a protectable interest in the general knowledge and skill of an employee. Id. However, an employer can typically prevent former employees from using its trade or business secrets or other confidential information in competition with the employer. While figuring out what constitutes a trade secret is generally easy, determining what constitutes confidential information can be much more difficult. Indeed, in one particular case, a Tennessee court held that customer lists, customer credit information, pricing information, and profit and loss statements did not constitute confidential information because such information is easily available from sources other than the employer. Id.
If you are an employee with a potential non-compete dispute or an employer looking to prevent unfair competition and/or protect confidential information from your competitors, you need a business litigation lawyer Memphis knows and trusts to handle the matter for you.
Call us today at 901.372.5003.