What Is A Non-Compete Agreement?

What Is A Non-Compete Agreement

Some companies ask that new employees sign non-competition agreements before they can start working. Understanding what is a non compete agreement requires people to understand what constitutes valid agreements and how courts view them.

A non compete agreement typically is effective once the employee has left his or her job. There are a number of valid reasons that employers may require these agreements, including protection of goodwill or trade secrets. Courts tend to disfavor these agreements because they limit the ability of former workers to find new jobs. This means that non-compete agreements will be closely scrutinized when they are a part of legal disputes.

What is a non compete agreement?

For a non compete agreement to withstand legal scrutiny, it must:

  • Have been signed in exchange for consideration
  • Be reasonable in time, geography and scope
  • Protect the employer’s legitimate business interest

Consideration is something of value that the employee receives in exchange for his or her agreeing to refrain from competing against the business. When employees sign before they start working, the employment itself may be viewed to be consideration. When employees are asked to sign an agreement that contains a non compete clause after they have started working, then the consideration must be something of additional value such as a promotion.

Legitimate business interests

An employer’s goodwill refers to the customer relations that the employer enjoys and is viewed as a business asset. Employers are allowed to use a non compete clause to keep former employees from using that goodwill in order to compete with the employer. Confidential information may also be protected by non-compete agreements as long as the employer used reasonable efforts to keep the information a secret and that it provided the employer with a competitive edge.

The agreement must be reasonable

Courts consider the burden that a non-compete agreement places on the employee versus the employer’s need to protect its legitimate business interests when the court determines whether or not the agreement should be enforced. An agreement must be of a reasonable scope and duration. How long the duration may be will vary from case to case. In general, the duration should not be any longer than what is reasonably required to protect the information. The geography of the agreement must be a reasonable distance. How reasonable it is will depend on the type of work the employee performances and how important the work is to the business of the employer. Courts usually will not allow the enforcement of a non-compete agreement in an area in which the employer does not already do business.

Agreements that are too broad may be narrowed by the court or they may be thrown out entirely.

Getting help from an attorney

Just as employers have rights to protect their business interests, former employees have the right to work. The interests of each must be balanced. People who signed non-compete agreements and want to learn more about their rights might want to consult with an attorney at Swartz Swidler.