Non-compete agreements are
legal contracts between employees and employers stating
that company information can or (more often) cannot
be used by current or former employees. The agreement
also prevents the employee from competing, directly
or indirectly, against the employer and its successors
and/or from joining a competitor, during the period
of employment and for a specified period of time after
leaving the company, regardless of the cause or reason
of
termination.
Laws vary from state to state regarding
non-compete agreements. In California, for example,
it is illegal; employers cannot restrict the livelihood
of their current or former employees. Many other states
specify that they must be entered into at the beginning
of the employee relationship. If they are mentioned
later, there must be something new given by the employer—either
a significant promotion, a large raise or other similar
enticement, and it needs to be in writing.
Most applicants and employees, when
signing a non-compete agreement, do not take it seriously
and assume the relationship will run smoothly. It
is in the best interest of the newly-hired employee
to go through the agreement carefully, and assess
all the pros and cons—especially in regard to
not being able to work with or for the company’s
clients or competitors for a specified period of years.
There are four types of non-compete
agreements restricting the employees’ use of
company information:
 |
Non-compete
agreement- Prohibits employee from working
for a competitor of the employer, or from competing
against the employer after his/her employment
ends. |
|
Non-solicitation agreement-
Prevents former employee from soliciting, contracting,
or transacting business with the employer’s
existing clients or customers. |
|
Non-disclosure agreement-
Prevents employees from using their former employer’s
trade secrets, proprietary information, and/or
confidential business information, or disclosing
this information to third parties, or disclosing
trade secrets to competitors or for a competitor’s
benefit. |
|
Confidentiality agreement-
Informs the employee that the employer intends
to keep certain information confidential. |
In determining whether a non-compete agreement is
valid, courts assess the following questions:
| 1 |
Does the agreement
protect a legitimate interest of the employer? |
| 2 |
Is the agreement too restrictive
in terms of its duration? Is the agreement limited
to the amount of time necessary to reasonably
protect the employer? |
| 3 |
Is the agreement too restrictive
in terms of the geographic boundaries specified?
Is the agreement limited to the geographic areas
necessary to reasonably protect the employer? |
| 4 |
Is the agreement supported by
good consideration? |
