A noncompete agreement is a contract between an employee and an employer, where the employee agrees not to enter into competition with the employer after the employee leaves or is terminated. It is a common business practice for employers to require their employees to sign a non-compete agreement as part of the terms of their employment. Use of non-compete agreements are a particularly popular practice in situations where the employee will have access to sensitive or confidential business information as part of their routine job duties. While it may be impossible to prevent someone from leaving a particular job, non-compete agreements can be used to prevent the former employee from working for a competing company and taking on a position that would have financial implication for the former employer.
Employers may require non-competition agreements for a variety of reasons, including protection of trade secrets or goodwill. The goodwill developed by an employer in terms of customer relations is an asset, so an employer may use a non-competition agreement to prevent a former employee from capitalizing on that goodwill and competing with the original employer.
Employers may also seek noncompete agreements to protect themselves against former employees revealing secrets or sensitive information about the employer’s trade, operations, clients, customers, formulas, pricing, strategy, salary, methods and practices, ideas, future products, or public relations and marketing plans.
Non-compete agreements overall must be both fair and equitable for all parties. These agreements require certain information in order to be considered legally binding such as an effective date on which the agreement will begin, a reason for enacting the agreement, specific dates during which the employee will be barred from working in a competitive sense and the location covered by the agreement as s employers can only set these agreements within a realistic timeline and cannot permanently prevent someone from furthering their careers in that field or market.
The validity of noncompete agreements varies by state. Some states disregard these agreements altogether, while others pick and choose which careers prove more risk for a company and, therefore, can be subject to such an agreement. It varies from case to case and can depend on state law, on how restrictive the agreement is, and on what the employer construes as competition. Non-compete agreements are usually considered legally binding as long as the agreement has reasonable limitations, such as a clear, realistic region where the employee may or may not work, or an exact amount of time that must pass before an employee may commence work in the field again.