[This post is part 1 of a 2 part series on non-compete agreements. Part 1 will address the foundation of any non-compete agreement, i.e., the protectable business interest asserted by the employer. Part 2 will address how each non-compete agreement must reasonable with respect to temporal and geographic scope.]

A common query from clients concerns is whether non-compete agreements are enforceable in Tennessee. My standard answer is “yes, but it depends on the facts and circumstances of each particular agreement.”

First and foremost, for a non-compete agreement to be enforceable in Tennessee by an employer against an employee, the employer seeking to enforce the agreement must have a legitimate business interest, i.e., an interest that is properly protectable by a non-competition agreement. Vantage Technology, LLC v. Cross, 17 S.W.3d 637, 645 (Tenn. Ct. App. 1999).

Vantage Technology is the leading Tennessee case on the subject of protectable business interests and is must read for any attorney advising a client (whether employer or employee) in this area of employment law.

In Vantage, the Tennessee Court of Appeals noted that “[b]ecause an employer may not restrain ordinary competition, it must show the existence of special facts over and above ordinary competition. These facts must be such that without the covenant, the employee would gain an unfair advantage in future competition with the employer.”

The court then set forth three factors for courts to consider when determining whether a protectable interest exists:

(1) whether the employer provided the employee with specialized training;
(2) whether the employee is given access to trade or business secrets or other confidential information; and,
(3) whether the employer’s customers tend to associate the employer’s business with the employee due to the employee’s repeated contacts with the customers on behalf of the employer.

The Vantage court also noted that these considerations may operate individually or in tandem to give rise to a properly protectable business interest.

In my experience, employers as a whole tend to overreach concerning non-compete agreements. In other words, in addition to overly broad language concerning the temporal and geographic scope of the agreement, many employers require employees to sign non-compete agreements which lack a properly protectable business interest underlying the agreement. The law is clear in Tennessee that the employer’s burden is substantial in establishing the existence of a protectable business interest. It is not enough, for example, for an employer to hire a salesman, make him sign a non-compete, and expect to be able to enforce the non-compete when he leaves for a better opportunity, without significant proof relating to one or more of the three Vantage factors. Therefore, when it comes to reviewing a non-compete agreement, the first place to start is a sharp focus on the protectable business interest alleged by the employer.