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Pay Me Now or Pay Me Later is a series of short tips on common legal mistakes small business owners make.

Tip # 3 – Ensure employees, especially key employees, enter the appropriate invention assignment, confidentiality and non-compete agreements as a condition to their employment.

When hiring employees, an employer should have a standard set of documents it requires each employee (or at least each key employee) to sign as a condition of employment. These documents should include an invention assignment agreement by which the employee agrees that any invention or other intellectual property that the employee creates or discovers during his employment time or using his employer’s resources are owned by the employer. By having such a written agreement, the employer is not forced to rely on state law or case law to try to obtain ownership of inventions and other intellectual property created by its employees. Likewise, by having appropriate confidentiality and non-compete and non-solicitation agreements with your employees, you should be able to protect yourself from a former employee unfairly utilizing your entity’s confidential information or unfairly competing with you or seeking to hire your other employees.

In North Carolina, a non-compete agreement (like any contract) will not be enforced unless it is supported by adequate consideration. If one of the conditions to becoming employed by the employer is that new employees must sign a non-compete agreement, and the employer requires this as part of its hiring process, generally adequate consideration will be deemed to exist – i.e., receiving the job is the new employee’s consideration for the non-compete. But if an existing employee is asked to sign a non-compete agreement, the employer must provide consideration to the employee at that time and generally continued employment is not adequate. Rather, the employer must pay the employee something to support that non-compete – such as a cash bonus. By requiring these agreements as a condition to employment and as part of the employment process, the employer avoids having to provide other consideration to the employee for the non-compete. In addition, a non-compete agreement will not be enforced by a court to the extent it is overly broad in terms of its duration and/or scope. So an employer should be careful not to require non-compete agreements with restrictions beyond what is reasonably necessary to protect the employer’s business interests. A lawyer practicing in this area of the law can easily help an employer create an appropriate non-compete agreement that is most likely to survive a legal challenge by the employee.

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