The use of employee covenants not to compete – once restricted to salespeople and high-level management – has continued to expand into the ranks of ordinary employees. A recent survey suggests that as many as one in five employees have some form of agreement placing restrictions on their post-employment activities.
The growing prevalence of such agreements – and their potential restraint on job mobility and economic growth – has led many states to enact laws or propose legislation that would limit or restrict their use. No such laws currently exist in Delaware, but its courts have developed a “reasonableness” test to determine whether covenants not to compete will be enforced. This test includes whether the restrictions are narrowly tailored to protect some legitimate economic interest, the scope of the restrictions, the former employee’s need to earn a living, and the public’s interest in having open competition in the marketplace.
The broader use of covenants not to compete has also led to more lawsuits. Frequently, these lawsuits are brought not only against the former employee, but against the new employer as well. Such claims typically allege that the new employer hired the employee despite its knowledge of the noncompete and/or allowed or encouraged the employee to disclose and use the former employer’s trade secrets.