What is an agreement not to compete?

If you have been asked to sign a noncompete agreement or an employment contract with a noncompete clause in it, you may wonder what it refers to. In general, a non-compete agreement is entered into before the employee begins work and takes effect once the employee ends their working relationship for that employer. An agreement not to compete is typically included in an employment contract the employee may be asked to sign.

A noncompete agreement may be used to protect trade secrets or the good will of the employer's company, however, they cannot be used to limit a former employee's ability to earn a living and will be closely scrutinized by the court if a dispute arises. To be considered valid, a noncompete agreement must protect a legitimate business interest of the employer, must be reasonable as to scope, geography and time and must be supported by sufficient consideration. If the agreement is signed prior to employment, the employment can be considered sufficient consideration.

Noncompete agreements may be used to prevent former employees from competing with the former employer using the goodwill with customers the former employer built up in its company. They may also be used to protect confidential information. In general, to be protected, the employer must have taken reasonable measures to keep confidential information secret and the information must give the employer a competition advantage.

In addition, the agreement must be reasonable, as the court will balance the employer's legitimate business interests against the burden on the employee. It is important that employees are protected related to noncompete agreements and are familiar with their requirements and implications and how protect themselves if they have signed one or are asked to sign one.

Source: Employment.findlaw.com, "Non-Competition Agreements: Overview," Accessed Oct. 9, 2017

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