Do Your Non-Compete Agreements Have a Tolling Provision?

1132864168-12613Non-compete agreements are intended to restrict a former employee from working with any competitor for a specified period of time after employment ends. It is a contract like many others which must include certain provisions which are essential to maximizing the benefits to the employer without unreasonably infringing on certain rights of the employee.  To be enforceable, non-compete agreements must be reasonable in the restrictions placed on the time period for which it is effective, the geography it covers and the scope of restricted activity.

Frequently, a key employee leaves to work for a competitor in violation of a non-compete restriction.  It is not unusual for a former employer to learn about such a non-compete violation until months after the employee has been working for the competition and well into a 24-month (as an example) restricted period. The question then becomes, when the former employer seeks to enforce the non-compete restriction, does the two year restricted period begin to run from when the employer found out about the violation or did it begin to run as soon as the employee went to work for the competition?  Put another way, does the employer get the benefit of enforcing the full 24-month restricted period?  The answer can have significant consequences.

As an example, a former employee jumps ship to work for the competition despite having a non-compete restriction prohibiting employment with a competitor for 24-months after leaving employment.  The former employer does not learn of the violation until six months after the former employee is working with the competitor.  When the former employer obtains an injunction to enforce the non-compete restriction, is the former employee prevented from working for the competitor for 24-months from the time of the injunction enforcing the restriction or is the former employer limited to the 18 months remaining in the restricted period?

If a non-compete agreement includes a tolling provision the answer is clear – an employer gets the benefit of a full 24-month restrictive period free from a former employee’s breach.  That is, the restricted period does not include any time during which the former employee violated the restriction.

If, a non-compete agreement does not include a tolling provision, however, the answer is uncertain.  In some jurisdictions the law has developed such that the former employee does not get credit for any period during which he was violating a non-competition restriction.  In other jurisdictions the law has developed such that, without a tolling provision, a former employer is left to recover money damages during any period the former employee violated the restrictive period and is limited to enforcing the restrictive period for whatever amount of time remains. Still in other jurisdictions the question is unresolved.

To ensure an employer is fully protected, non-compete agreements should contain tolling provisions.  Without such a provision, an employer can be left without the full benefit of its contract.

To talk more about this, feel free to call our Dayton Law Firm to discuss this issue.

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About Toby K. Henderson

Toby became an SS+D shareholder on January 1, 2006. He joined the firm’s Litigation Department in May 2000 and concentrates his practice in Business and Commercial Litigation, Trade Secret Claims, Antitrust, Health Care Law, Construction Law, and Labor and Employment Law.