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Will Tennessee courts uphold an employer’s noncompete agreement?

On Behalf of | Oct 9, 2023 | Business Disputes

The more important the role that someone fills at a company, the more likely they are to have access to certain trade secrets. Businesses may give executives, managers and other professionals access to proprietary information like client lists, recipes and other trade secrets that make a business more competitive.

Many organizations aim to limit the risk involved in hiring new workers by including certain restrictive covenants in their employment contracts to protect their competitive edge. Noncompete agreements have long been some of the most popular inclusions in employment contracts.

Companies have traditionally been able to prevent workers from starting a competing business or going to work for a direct competitor via these contractual resources. However, noncompete agreements have been the focus of increasing public scrutiny in recent years. There are even rumors of a possible ban that could take place at the federal level as soon as 2024. Yet, in Tennessee, these agreements remain enforceable under certain circumstances.

The courts disfavor but will uphold non-competes

Technically, Tennessee has certain rules that strictly limit the right of employers to enforce noncompete agreements. Noncompete agreements generally need to be reasonable and necessary for the protection of the employer for the courts to enforce them.

What makes a noncompete agreement reasonable is the inclusion of certain limitations on the agreement. Generally, companies will need to declare a specific geographic location where the restrictions apply and will need to set a specific duration for the agreement. Usually, agreements that last more than a year or two or that cover a massive geographic region will be less enforceable than those that are very specific.

There will usually need to be proof that the worker received some kind of valuable consideration for making those professional concessions as well. Provided that the circumstances meet those standards, a company operating in Tennessee could take a former employee to court. A judge might impose penalties as outlined in the agreement or could even order someone to cease competing with their former employer.

Organizations may need to rework their employment contracts in the upcoming months if federal policy on restrictive covenants changes, but those with existing agreements can potentially enforce them in the meantime. Learning more about how Tennessee handles different business law matters may benefit owners and executives facing operational challenges or worried about unfair competition.