Question

Legal Reasoning Group Activity 12-10. Covenants Not to Compete. Assume that you are (b) A second group should create a list of what interests are part of a group of executives at a large software corporation The company is considering whether to incorporate covenants not to compete into its employment contracts. You know that is to consider whether a court should (c) A third group reform (and then enforce) a covenant not to compete that it determines is illegal. The group should create an argu- ment for and an argument against reformation. there are some issues with the enforceability of these covenants, and you want to make an informed decision. (See Legality) (a) One group should make a list of what interests are served by enforcing covenants not to compete

Answer 1

(a): The interests that are served by enforcing covenants not to compete are:

(i): Business and commercial interests of the employer.

(ii): Legitimate interests in the form of trade secrets. Often a departing employee obtains confidential information during his employment (like a trade secret) and this has to be protected from being leaked or shared with the competition.

(iii): Legitimate interest in protecting the employer’s permanent customer base.

(b): The interests that are served by refusing to enforce covenants not to compete are:

(i): Public interests are served in a better manner by refusing to enforce covenants not to compete. This is because public interest is maximized in situations of productive competition.

(ii): Protecting the employee’s livelihood – By refusing to enforce covenants not to compete the company will not put a constraint on the employee’s chances of obtaining meaningful employment elsewhere.

(c ): Arguments for – The court should reform and then enforce a covenant not to compete. In many cases the restrictions are unreasonable in terms of time and area. A covenant not to compete gas to provide a benefit to the employee in terms of time and area. If the covenant is unreasonable in terms of its restrictions then the court will have to reform it so as to protect the interests of the employee.

Arguments against - No the court should not reform a covenant not to compete as the covenant has been put in place to protect the best interest of the employer in the form of its legitimate business interests, its confidential business information and its customer relationships. Any reform affected by the court may lead to dilution in the protection of legitimate business interest of the employer.