When Do Non-Compete Agreements Become Unenforceable?
Non-compete agreements are meant to protect a business’s interests, but they can easily cross the line if written too broadly. When that happens, they may become unenforceable under state or federal law.
At Murphy, Kinney, & Sumy, LLC, in Kansas City, Missouri, the firm helps both employers and employees understand their rights under a non-compete agreement—especially when its terms threaten future employment or business opportunities.
If someone believes their contract unfairly restricts their ability to work, they should contact the firm today to discuss their options with a qualified lawyer.
The Purpose of Non-Compete Agreements
A non-compete agreement is designed to protect an employer’s legitimate business interests, such as confidential information, trade secrets, and customer relationships. Typically, it restricts an employee from working for a competitor or starting a competing business for a certain period after leaving the company.
However, not all restrictions are treated equally. Courts often look closely at whether the employer’s goals are reasonable and whether the contract unfairly limits a worker’s right to earn a living. When an agreement is too restrictive, it’s more likely to be declared unenforceable.
To understand where the line is drawn, it helps to first recognize what these agreements typically cover:
Employment restrictions: These often prohibit working for a competitor in the same field or geographic region.
Customer restrictions: Some contracts bar an employee from contacting or soliciting former clients.
Confidential information protection: Employers may prohibit disclosing proprietary or sensitive information gained through the job.
Each of these restrictions must be proportionate to the legitimate business interest being protected. When they aren’t, courts may refuse to enforce them.
How Courts Assess the Validity of a Non-Compete Agreement
When evaluating a non-compete agreement, courts weigh several factors to determine whether it’s fair and necessary. They aim to balance the employer’s right to protect its business against the employee’s right to work and make a living.
The most common factors include duration, geographic scope, and scope of activity. If any of these elements are too broad, the non-compete agreement could be ruled unenforceable. For instance, a clause preventing an employee from working in any capacity within an entire industry—rather than just in a similar role—is likely excessive.
Legitimate Business Interests That Can Be Protected
Courts won’t uphold a non-compete agreement unless it serves a valid purpose. Protecting legitimate business interests is the cornerstone of enforceability. Common examples include:
Trade secrets: Businesses often use non-competes to prevent former employees from sharing confidential information that gives them a competitive advantage.
Client relationships: Employers can justify restrictions that prevent ex-employees from poaching long-term customers or clients.
Specialized training: If a company invests heavily in training an employee in proprietary methods, courts may allow limited restrictions to protect that investment.
When an employer can’t clearly link the restriction to one of these legitimate reasons, courts may view the agreement as punitive rather than protective—and therefore unenforceable.
Situations That Make a Non-Compete Agreement Unenforceable
Even when an employer claims a valid reason for a non-compete, certain circumstances can render the agreement void. These situations often arise when the contract oversteps what’s legally acceptable or when the employer’s conduct invalidates its enforcement rights.
Overly Broad Restrictions
If the agreement is too broad in scope, duration, or geography, a court may refuse to uphold it. For instance, a three-year ban on working in an entire state is often considered unreasonable. A restriction that applies to roles unrelated to the employee’s previous position is typically unenforceable.
Lack of Consideration
Contracts must offer something of value in exchange for signing. If an employee didn’t receive additional benefits—such as a promotion, pay increase, or bonus—when asked to sign a non-compete agreement after hiring, the contract may be void.
Employer Breach of Contract
When an employer fails to meet its obligations under the employment contract—such as by withholding pay, benefits, or severance—it may lose the right to enforce a non-compete clause.
Public Policy Violations
Some non-competes are struck down because they violate public interest. For example, courts are reluctant to enforce agreements that prevent professionals like doctors or lawyers from serving their communities.
Involuntary Termination
If an employee is laid off or terminated without cause, courts in many states view enforcing a non-compete agreement as unfair. In such cases, the balance of power shifts toward the employee’s right to work freely.
The Impact of Federal Oversight and New Regulations
In recent years, non-compete agreements have attracted attention from federal agencies like the Federal Trade Commission (FTC). The FTC has proposed rules that would significantly limit the use of these agreements nationwide, arguing that they suppress wages and limit economic mobility.
Although the proposed federal rule hasn’t yet taken full effect, it signals growing scrutiny of restrictive employment contracts. Many employers are now re-evaluating their non-compete clauses to avoid potential future challenges.
If federal restrictions take hold, businesses may have to rely more on alternative agreements, such as:
Non-disclosure agreements (NDAs): These protect confidential information without limiting where an employee can work.
Non-solicitation agreements: These restrict former employees from contacting clients or coworkers but allow them to work elsewhere.
These alternatives often strike a better balance between protecting the company’s interests and allowing employees professional freedom.
Non-Compete Agreements and Independent Contractors
Non-compete clauses aren’t limited to traditional employees. Many companies include them in contracts with independent contractors, consultants, or freelancers. However, these agreements face even closer scrutiny.
Since independent contractors aren’t employees, courts often find that non-compete clauses restrict fair business opportunities and violate independent business rights. For a contractor, being barred from working with other clients in the same field may amount to a restraint of trade.
Factors that can make such clauses unenforceable include:
Lack of true independence: If the contractor is treated more like an employee, courts may scrutinize the restriction more closely.
Unfair competition limits: Clauses that prevent a contractor from taking on other work may undermine their ability to maintain their livelihood.
Absence of mutual benefit: Without additional compensation, the agreement may lack adequate consideration.
Employers who rely on freelance or contract labor should be cautious when including non-compete provisions, as courts are often less willing to enforce them.
How Employees Can Challenge a Non-Compete Agreement
When a former employer threatens legal action over a non-compete agreement, employees do have options. Challenging the enforceability of the contract is possible, especially if the agreement is overly broad or unfair.
Steps an employee might take include:
Reviewing the contract with a lawyer: An employment lawyer can assess whether the non-compete’s restrictions are legally enforceable.
Evaluating state law: Because state rules vary, understanding the jurisdiction’s stance is crucial.
Negotiating a release: Sometimes employers will agree to limit or remove the restriction, especially if it’s unlikely to hold up in court.
Filing a declaratory judgment action: This legal action allows a court to declare the agreement invalid before a dispute escalates.
Employees shouldn’t assume that signing a non-compete means they’re permanently bound by it. Courts frequently invalidate agreements that overreach or conflict with state laws.
The Growing Shift Against Broad Non-Competes
Legal trends suggest that courts and lawmakers are increasingly skeptical of non-compete agreements. Many jurisdictions are introducing or strengthening laws that limit their use, particularly for lower-wage employees.
The shift is rooted in concerns about fair competition, economic growth, and employee mobility. As the legal environment continues to evolve, both employers and employees need to stay informed about their rights and obligations under these agreements.
For businesses, overly restrictive contracts may backfire—discouraging potential hires or leading to unenforceable terms. For workers, knowing when a non-compete crosses the line can make a significant difference in career opportunities.
Trusted Legal Guidance
Anyone dealing with a non-compete dispute—whether as an employer drafting a policy or an employee seeking to move forward—should speak with a qualified employment law attorney.
Murphy, Kinney, & Sumy, LLC advises clients across Kansas City, Missouri; St. Joseph, Missouri; Lee’s Summit, Blue Springs, Grain Valley, Parkville, Liberty, Belton, North Kansas City, Overland Park, Leawood, and Prairie Village; and Kansas City. Contact the firm today to review your non-compete agreement with an experienced attorney.
