What Makes Non-Compete Agreements Enforceable?

Non-compete agreements play a significant role in protecting business interests, trade secrets, and professional relationships. In Kansas, these agreements must strike a careful balance between an employer’s right to protect their business and an employee’s right to work in their chosen field.

At Myers Longhofer LLC, our experienced business law attorneys help businesses and individuals understand how non-compete agreements function and what makes them legally enforceable.

Defining a Non-Compete Agreement

A non-compete agreement is a contract where one party agrees not to engage in certain business activities that could compete with another party, typically their employer. These agreements are often included in employment contracts, business sales, and independent contractor agreements.

Under Kansas law, courts examine non-compete agreements to determine if they serve to protect a legitimate business purpose while remaining fair to the employee. If a court finds an agreement too restrictive, it may be ruled unenforceable or the scope of the protections may be reduced. As such, it is essential to draft non-compete agreements carefully to make sure they serve your businesses interest and are enforceable.

Legitimate Business Interest

For a non-compete agreement to hold up in court, it must protect a legitimate business interest. Kansas law doesn’t allow employers to impose restrictions simply to prevent competition. Instead, there must be a clear reason for the agreement, such as protecting trade secrets, confidential business information, or customer relationships.

Employers commonly use non-compete agreements in industries where sensitive information or specialized knowledge plays a crucial role. 

Businesses that have introduced employees to long-term or important clients and/or invested time and money educating employees on proprietary methods also have a strong interest in using these agreements. However, restrictions must not go beyond what is reasonably necessary to protect those interests.

Reasonable Time Restrictions

Kansas courts will enforce non-compete agreements only if it includes a reasonable time limitation. If an agreement restricts an employee from working in a particular industry indefinitely, it will likely be struck down.

Generally, Kansas business law recognizes time restrictions ranging from six months to two years as reasonable, depending on the circumstances. 

Courts will consider the type of work involved and the industry standards when determining if a time restriction is fair. Agreements that attempt to restrict a former employee’s ability to work for an excessive period are often viewed as unfair.

C-Suite or highly compensated employees may be subject to longer restrictions due to their advanced knowledge of a companies proprietary methods, clients, future business plans, etc. Same for employees that also may have an ownership interest in the business.

Geographic Limitations

Another key factor in enforceability is the geographic scope of the restriction. A non-compete agreement that prevents an employee from working anywhere in the country or globally is unlikely to be upheld. However, with more people working from home and having a national, and sometimes global reach, this is an area of the law developing rapidly.

Generally, Kansas and Missouri law requires geographic restrictions to be reasonable based on the employees responsibilities and the nature of the business. For example, if a business operates only in Wichita, a non-compete that restricts a former employee from working anywhere in Kansas may be too broad. Courts tend to enforce agreements that are limited to the areas where the employee actually performed services and/or the business has a legitimate interest in preventing competition.

Consideration and Compensation

A non-compete agreement must be supported by valid consideration, meaning the employee receives something of value in exchange for agreeing to the restriction. This often comes in the form of initial employment, continued employment, promotions, bonuses, or other benefits.

In some instances, courts have held that employers can ask employees to sign non-compete agreements even if they did not have such an agreement when they first started with the business or received a recent promotion. Courts in both Kansas and Missouri have held that continued employment may be enough consideration for requiring employees to sign a non-compete.

Industry-Specific Considerations

Certain industries may have different standards when it comes to non-compete agreements. Healthcare professionals, for instance, often face unique restrictions because limiting their ability to work could impact public access to medical care and/or result in patient abandonment issues.  Lawyers are precluded from signing non-compete agreements because clients have a constitutional right to the counsel of their choice. As such, the ethics rules do not allow lawyers to be subject to non-compete agreements.

Non-Solicitation and Confidentiality Clauses

A non-compete agreement often works alongside non-solicitation and confidentiality clauses. While non-competes restrict a person’s ability to work in a specific industry or location, non-solicitation clauses prevent former employees from directly soliciting clients or employees from their previous employer.

Confidentiality clauses are also crucial, as they prohibit former employees from using or disclosing proprietary business information. Generally both Kansas and Missouri court enforce reasonable non-solicitation and confidentiality clauses more strictly than broad non-compete restrictions, making them an essential part of protecting a company’s interests.

Enforcement and Court Challenges

If a dispute arises over a non-compete agreement, courts in Kansas and Missouri will evaluate its fairness and reasonableness. The burden of proof often falls on the employer to demonstrate that the agreement protects a legitimate business interest and doesn’t impose unfair restrictions on the employee.

If a courts believes the scope of a non-compete agreement is too broad, they are not required to strike it down altogether. Rather, courts can use their inherent power to revise the non-compete agreement to make it more reasonable in geographic scope or duration. This process is called "blue-penciling" a non-compete. It simply means that an overly broad agreement might be adjusted rather than invalidated. The recent trend across the country, however, is to completely invalidate non-compete agreements that are overly broad. Some states, such as Minnesota, even have laws to prevent the courts from "blue-penciling" or reducing the scope of a non-compete agreement as a way to deter employers from making employees sign over-reaching non-compete agreements.

Business Sales and Non-Compete Agreements

Non-compete agreements are also commonly used in business sales. When a business owner sells their company, the buyer often wants protection against the seller starting a competing business shortly after the sale. 

In these instances, courts tend to be more willing to enforce non-compete clauses, as they were negotiated at arms-length (usually with the assistance of counsel) and are tied to the value of the business being sold.

Both Kansas and Missouri courts generally allow broader restrictions in such instances. Courts recognize that buyers have a vested interest in protecting their investment, especially when the former owner has strong relationships with clients, employees and vendors.

The Importance of Clear Language

A non-compete agreement must be clearly written to be enforceable. Vague or overly broad language can lead to legal disputes and make enforcement difficult. Additionally, vague or confusing language is generally held against the drafter of the document (in most cases, the employer). Therefore, employers should be sure to make their agreements with employees clear and easy to read because of what courts often feel is the disparate knowledge between employers and employees when it comes to understanding contracts. Its often wise for employers to allow employees some reasonable period of time to have the non-compete agreement reviewed by their own counsel before signing.

Ambiguities in an agreement will invariably lead to different interpretations, making it harder to uphold an agreement in court. Using precise language reduces the risk of misunderstandings and increases the likelihood that the agreement will be enforced as intended.

Employee Rights and Defenses

Employees who are subject to a non-compete agreement have rights under Kansas and Missouri law. If an agreement is overly restrictive or unfair, an employee may challenge it in court. Some common reasons a non-compete agreement may be unenforceable include:

• Overly restrictive terms: Agreements that impose unreasonable time limits or geographic restrictions.

• Lack of valid consideration: If an employer fails to provide something of value in exchange for the agreement, it may not be enforceable.

• Changes in business circumstances: Significant shifts in the company’s operations or market conditions could impact the validity of the agreement.

Modification and Review of Agreements

Businesses should periodically review their non-compete agreements to make sure they align with current laws and court decisions on enforceability. Courts have adjusted their views on these agreements over time, and a contract that was enforceable years ago may no longer meet today's legal challenges.

Similarly, if a business expands into new markets or changes its operations, existing agreements may need to be updated. Reviewing these contracts regularly can help businesses protect their interests while staying compliant with current trends in the law.

The Next Steps

At Myers Longhofer, we help businesses and individuals understand their rights and obligations under Kansas business law. We’re proud to serve Overland Park, Kansas, and the surrounding areas of Johnson County, Olathe, Leawood, Shawnee, and Kansas City, Missouri. Call today.