Employment Discrimination Blog

Monday, August 31, 2020

What Is a Non-Compete Agreement?

Before you start a new job, you will likely need to review and complete a substantial amount of paperwork. While it can be tempting to rush through this process, both to get through the red tape and in the excitement at starting a new job, it is important to take your time to review the contents of these documents and the potential impact they can have on you and your future. For instance, you may be presented with a non-compete agreement your employer wants you to sign. Before you do so, look into what a non-compete agreement is and what it could mean for you.

What is a Non-Compete Agreement?

A non-compete agreement, also referred to as a non-compete clause, non-compete covenant, or covenant not to compete, is a legal contract between an employer and an employee that restricts the employee on his or her ability to enter into competition with the employer during or after the period of employment. The intent of a noncompete agreement is to protect a company from misuse of the information an employee will gain in working for them.

An employee is likely to have an insider perspective on the inner workings of the business and could use such information to compete against the company. Essentially, an employer is attempting to protect itself against and employee or former employee revealing and exploiting secrets and sensitive information about the company.

Certain States Don't Recognize Validity

While noncompete agreements may appear to serve a valid purpose, many states do not recognize their validity and are seen as an undue restriction on a person’s right to work. North Dakota and Oklahoma both find noncompete agreements to be unenforceable. California takes things a step further and, on top of finding noncompete agreements to be unenforceable, the employer can be sued if the employer requires an employee to sign a noncompete agreement.

Reasonable in Nature

Even in states where noncompete agreements are valid, however, they must be reasonable in nature in order to be enforceable. Terms such as time, geographical region, and what counts as competition must all be reasonable for the noncompete agreement to stand up to a legal challenge. In addition to having reasonable terms, in order to be considered a valid contract, both parties must receive something for entering into the contract. The employer, of course, receives the protection provided by the noncompete agreement.

The employee must receive something as well. In most cases, what the employee receives in exchange for signing the non-compete agreement is a job and courts have found this to be valid consideration for entering into the contract.

The Benefits of a Non-Complete Agreement

While non-compete agreements may seem burdensome, they do have some benefits. A company can receive trade secret protection. It may also reduce employee turnover in a company because of the restrictions employees would face if they left the company.

It may also act as an incentive for a company to invest valuable and costly training for employees. Since employees are more likely to remain at the company and trade secrets are protected, the employer may be more motivated to invest in substantial on the job training for employees.

Employment Law Attorneys

A noncompete agreement can have serious implications for those entering into them. For questions as to whether you should have a noncompete agreement or whether you should enter into a noncompete agreement, consult the employment law attorneys at Pankey & Horlock. Contact us today.

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