Business-Minded Legal Solutions

Non-competes & clickwrap: Will they survive a legal challenge?

Clickwrap agreements result when a user clicks a button or checks a box to confirm that he or she accepts the agreed upon terms. Businesses often use these contracts for those who are setting up an email account, using an online banking system or purchasing a product through the Internet.

Like all things in the legal world, this area of business law has evolved. Employers are now using clickwrap agreements to help manage employment contracts. Disputes have resulted, including a recent disagreement about the power of a restrictive covenant.

Is a clickwrap restrictive covenant enforceable? In ADP, LLC v. Lynch, an employee argued his employer wrongfully included a non-compete agreement within a stock award plan clickwrap agreement. The employee argued the employer had not provided adequate notice of the existence of the restrictive covenant and that, as a result, the restrictive covenant should not be enforceable.

The appeals and trial courts upheld the employer’s use of clickwrap to provide a restrictive covenant. The courts stated the requirement to check a box acknowledging the documents were read and the need to enter a password to formally accept the agreement were sufficient.

What can employers and employees learn from this case? First, it is important to note that this is not the only case that resulted in a court upholding the use of a clickwrap agreement to hold an employee bound by a non-compete agreement. Many courts that have taken on comparable legal disputes have reached similar holdings.

Employers that wish to use clickwrap for restrictive covenants are wise to include certain acceptance processes, like a clear notice, reasonable time to respond and the active need to click a box that states the employee has read the specific document. If an employer follows this protocol, under current law it appears the agreement may be enforceable if it is also reasonable and does not otherwise violate the law.

Employees should take this as a reminder to carefully read any document that requires an official acknowledgement.