The construction industry can be highly competitive. That’s why many general contractors require their subcontractors to sign non-compete agreements as well as non-solicitation agreements. These agreements have to be deemed reasonable to be enforceable in court.
Here we’re going to look at what courts look at when determining if a non-compete agreement is valid. They might do this if a general contractor tries to sue a subcontractor for violating their agreement.
As with a non-compete agreement in any industry, the restrictions have to be reasonable in terms of length of time and geography (sometimes referred to as time and space). In the construction industry, it also depends on what kind of work the subcontractor does. For example, if one of the types of work they do isn’t done by the general contractor, there’s typically no valid reason to restrict them from doing it.
What determines whether an agreement is valid?
In addition to time constraints and geography, the following are a number of other factors that a court may consider when determining the validity of a non-compete agreement between a general contractor and subcontractor:
- Is the agreement an attempt to eliminate all competition or only unfair competition?
- Does the agreement prevent the subcontractor from using their experience, skllls and talents, and were those primarily gained while working for the general contractor?
- Does the contract endanger the subcontractor’s only means of earning a living?
- Does the subcontractor have trade secrets or confidential information about the general contractor’s business?
- Is the subcontractor marketing to the same clients and in the same way as the general contractor?
If the agreement states a legitimate business need for the restrictions that are included in it, there’s probably a greater likelihood of success by the contractor who drew up the agreement. A contractor is going to understand their business better than a judge who’s asked to rule on it.
Essentially, while there’s a need for non-compete agreements, they have to be fair to those who are being held to them. That’s why it’s always wise to seek legal guidance when developing a non-compete agreement for your business. This can save you from unfair competition as well as from the time and expense of having to go to court to enforce it, only to lose because it wasn’t valid or fair.