Given our country's attitude toward competition, it should come as no surprise that courts view covenants not to compete unfavorably. However, promises not to compete are legally enforceable if they meet a three-part test:

• The promise must be narrow in scope and duration.
• The promise must be part of another agreement.
• The promise must be reasonably necessary to protect the legitimate interests of the client.

The overarching consideration is that the covenant be reasonable. The covenant must cover only the geographic area necessary to protect the client and must be limited in time. There are no exact guidelines as to how broad an area is permitted or as to the duration of a covenant. Courts have upheld covenants that lasted 10 years and were worldwide in application.

To ascertain what is reasonably necessary, you must look at the circumstances. It may be reasonable to require the former owner of a company offering a unique technology not to start another company offering a similar technology anywhere else in the world for a period of 10 years. However, it would not be reasonable to restrain an expert chef from working in another restaurant anywhere in the world. Courts take a particularly dim view of a covenant that precludes a person from carrying out her livelihood.

A covenant not to compete that is a stand-alone agreement will not be enforced. It would be viewed as an unwarranted restraint on trade. Likewise, clients cannot simply impose covenants not to compete to avoid competition. The covenant must be reasonably necessary to protect the client's legitimate interest.

For example, in the case of the business owner who sells her company to another, it is reasonable to protect the new owner's interest in establishing the business under her management without having the old owner open up shop next door. In that situation, a covenant not to compete would be appropriate. The geographic and time restrictions would depend on the nature of the business and the uniqueness of the product it offered.

Covenants not to compete in technology consulting agreements take various forms. A common one is where the consultant agrees not to offer similar services herself, or to competitors of the client, for a set time and in a given area.

If you are faced with a covenant not to compete, remember that a covenant not to compete that curtails your ability to make a living is a significant financial constraint imposed upon you. Make sure that you are compensated for agreeing to do this.

Originally, covenants not to compete were used in the sale of businesses to protect the new owner from having to compete with the established owner who was selling the business. Later, they were included in contracts with highly compensated managerial and technical employees.

However—and this is important—these contracts included a quid pro quo. The former business owner or the employee was paid for her agreement not to compete. The payment may have been direct, but in the form of a higher salary or perks, or included in the sales price.

This concept—payment for your agreement not to compete—has been dropped in many of today's consulting agreements. However, companies and consultants who understand the economic price of restraining their ability to make a living include payment for this promise in their contracts.

When you're faced with a covenant not to compete, carefully read it. Don't rely on the fact that it may not be enforceable; don't just sign it anyway. If you have concerns or it seems too broad, discuss them with the client. Call your attorney and get her take on it. It's easier to avoid the promise than to undo it later.