A non-compete agreement is a contract between an employer and employee where the employee agrees to refrain from competing with the employer during or after employment. Their agreements are not forever, they typically expire after an expressed amount of time after employment. Employers use these agreements to protect confidential information and practices from being available to competitors in their market. The enforceability of a non-compete depends on your state’s laws, but there are a few general requirements that will be needed in most states for the non-compete to be enforceable.
First, in most states a non-compete agreement will be enforced if the agreement has a reasonable time restriction. The court will typically determine the reasonability of the time will usually be considering whether the employer only restricts the employee for the amount of time necessary to protect its interests. The agreement’s geographical area must be reasonable as well. The geographical limits can be placed on cities, counties or states but the employer must be specific.
The noncompete agreement must also be industry-specific and necessary. Another important element necessary is consideration. Consideration in the details explaining how the employee will be compensated for agreeing to the non-compete. It is important to note whether your non-compete agreement is during or before employment. Non-compete agreements that are contracted during employment require separate consideration and is invalid without.
Generally, most states will allow a non-compete agreement to be upheld if the required elements are limited in scope and size. The courts are not likely to allow agreements that put a burden on the employee and make it difficult for the employee to find employment that makes use of their skills. Common reasons a court might find a non-compete unenforceable include:
- whether the employee resigned or was terminated,
- time, some states bar pre-employment non-compete agreements,
- the employee’s work did put them in a position to create a risk to confidentiality or competition or
- necessary elements of the non-compete are too broad.
Your non-compete agreement could also be unenforceable based on your profession. In some states certain professions are excluded from non-compete agreements. These professions typically include doctors, attorneys and veterinarians to name a few. It is important to check your state’s non-compete agreement laws to determine if your profession is excluded from enforceability.
Again, the enforceability of a non-compete will vary depending on your state. It would be in your best interest to contact an attorney with any questions you may have before signing a non-compete agreement.
Thanks to our friends from the Crone Law Firm for their insight into non-compete agreements.