The quick answer is “yes,” provided they are “reasonable” and provided they do not restrict certain professions that are statutorily protected.
It can be difficult for a business to gain a competitive advantage over their competition. Many successful companies rely on trade secrets to create a product or service that is better for consumers than a competitor’s, but if an employee leaves and takes those trade secrets with them, it could have a serious impact on your business.
In an effort to prevent workers from learning a company’s trade secrets and then leaving to create or work for a competing business, employers and employees often enter into what is known as a non-compete agreement or “covenant to not compete.”
What is a non-compete agreement?
A non-compete agreement is an arrangement between an employer and an employee. The goal of these agreements are to prevent employees from taking valuable trade secrets or influence away from a company and using the employer’s trade secrets to compete with them in the marketplace.
These types of agreements generally have specified limitations. Some common limitations include,
- Time – For example, an employee may not be able to open a competing business for at least two years after they leave the company.
- Area – An employee may not be able to open a competing business within a certain distance of the employer’s business.
“Reasonableness” is an important factor to weigh, when considering whether a non-compete agreement is enforceable. Specifically, these types of agreements are not necessarily set in stone. A judge may determine that the terms of the agreement are unreasonably restrictive. For example, the original agreement may specify that a worker may not open a competing business within 200 miles for 5 years. Such time and distance has been held to be unreasonably restrictive in New Mexico courts, depending on the specific circumstances.
If the employee (or ex-employee) has an issue with this, they can file a lawsuit and a judge may determine that the restrictions are too severe. At this point, the judge can reduce the restrictions depending on the case-specific factors.
There are some circumstances that prohibit non-competed entirely. The State of New Mexico has enacted some laws that exempt medical professionals (dentists, physicians, nurses, etc.) from non-compete agreements because limiting competition in the health care market could reduce a person’s access to health care.
These types of issues can become complicated very quickly. Fortunately, there are legal professionals who focus on these types of agreements, and they can work with you to create a solution that meets your needs. If you have any questions regarding non-compete agreements, we strongly encourage you to seek competent legal assistance from an experienced business attorney.