Non-Competes & Non-Soliciations: What’s the Difference?
When building a successful games business, developers often seek protection from unwanted competition by asking employees to sign a non-compete or non-solicitation agreement as a condition of the individual’s employment. What’s the difference, and what’s the likelihood of a court enforcing those agreements?
Non-Competes are tough to enforce–which is why they need to be carefully drafted
A non-compete agreement restricts a former employee from working with one of the former employer’s competitors. These agreements have become boilerplate language in many employment contracts; however, there is a difference in having these agreements in a form contract and the agreements actually being enforceable.
Often, a court will not enforce a non-compete agreement because many of them are too broad. That is, they attempt to restrict the former employee’s right to work beyond a reasonable timeframe or geographic area or the agreements do not seek to protect a valid employer interest (except that of limiting competition in the industry). For more about testing the validity of these types of agreements, read this earlier post.
Non-Competes made as a part of a company sale are easier to enforce
Another reason courts generally dislike non-compete agreements for employees is that the employer has unequal bargaining power over the employee. Generally, that power-dynamic would not be the case for a non-compete agreement made as a condition of a sale of business–and many courts are likely to uphold that type of non-compete agreement.
That makes good business sense – if an owner of a profitable FPS games company sells the company, the buyer would not want the seller to create another FPS game to compete with the buyer’s newly acquired company. That being said, these types of agreements must still be reasonable in the time frame and geographical scope.
Non-Solicitation agreements are more likely to be enforced
A non-solicitation agreement is not a restriction on the former employee’s right to work but rather restricts the former employee from soliciting the former employer’s other workers, customers or clients.
In the games industry, where top talent is often headhunted, a non-solicit can prevent a producer from leaving a company and taking an entire team with them. Unlike non-compete agreements, courts look more favorably on non-solicitation agreements. Where a non-solicitation provision does not limit a former employee’s right to work, it is much more likely to be enforced. By contrast, a non-solicit preventing solicitation of a company’s customers where a person has a narrow skillset and there is a limited market may be less enforceable because the employee may need to solicit the same field to make a living – this is especially true in employee-friendly states like California.
Individual states’ laws determine the validity of these types of agreements, so a company wants to ensure careful drafting of these agreements in whatever state they’re contracting in.