When preparing employee separation or severance agreements, we are occasionally asked by clients whether they can include a noncompetition restriction as part of the severance offer, even in situations where no noncompete was in place during the employment relationship. While such post-employment noncompetes are not uniformly prohibited in North Carolina and other states, these restrictions face legal hurdles not applicable to agreements signed while the former worker was employed.
Some courts view such restrictions as a "naked restraint on trade." In other words, a last-minute attempt to restrict the employee on the way out the door does not indicate a consistent pattern by the employer of identifying and protecting the company against unfair competition by a category of workers. If the employee presents such unfair competition risks, why were they not placed under the noncompete until the end of employment?
Based on this judicial hostility, the best argument for enforcing a noncompete put into place at the end of employment is to pay the departed worker for the duration of the restricted period. Most companies are unwilling to take on this financial burden. While the noncompete may not survive judicial scrutiny, including it in the separation agreement could serve as a deterrent against attempts to evade its provisions. On the other hand, including these restrictions may result in the departing employee refusing to sign the agreement due to potential interference with their immediate need to secure new employment. As a general rule, if employers view the need to place key personnel under noncompetition agreements, these should be put into place while the employment relationship is ongoing.
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