About Non-Compete Clauses
The owners and executives of a company have to trust their employees, but the relationship doesn't always work out. Even if it does, sometimes a valued employee has to move on. Especially in high-tech industries where intellectual property can be a huge part of a company's value, non-compete clauses have become a popular, though inconsistent, means of restricting an employee's ability to directly aid competitors.
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Function
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A non-compete clause limits who an employee can work for and what type of work they can do, with the ultimate goal of preventing the leak of vital trade secrets or other valuable information. Sometimes just the presence of a non-compete agreement will intimidate an employee into not leaving a company or from trying to work for a competitor. Non-competes are also common when a company is sold and the seller is made to agree not to compete with the new owners.
Features
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Non-compete clauses can appear within a contract, or can be a separate agreement. They usually include a description of the type of work the employee is barred from doing, a geographical restriction, usually the immediate market area, and duration, usually one or two years. When enforcing a non-compete, judges will assess its reasonableness and refuse to enforce overly broad restrictions. Non-competes rising from the sale of a business have more leeway since they are considered fairly negotiated terms of the transaction.
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Effects
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If a former employee engages in activity that may be in violation of a non-compete agreement, the employer must take them to court, where enforcement can take the form of financial damages and a court injunction. The new employer that hires an employee in violation of a non-compete clause can also be held liable for financial damages.
Considerations
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Non-compete agreements are subject to the laws of the state where the former seeks to find new work. While most states do enforce non-compete agreements, ten are particularly lenient. If a former employee seeks work in California, Nevada, Arkansas, Washington, Montana, North Dakota, Minnesota, Wisconsin, Connecticut, West Virginia, or Oklahoma, the old employer's chances of enforcing a non-compete agreement are limited.
Significance
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It's perfectly legal for an employer to make employment contingent on the signing of a non-compete agreement. If a former employee is bound to such an agreement, they should discuss their options with a lawyer. In many cases, the wording of non-compete clauses leaves the employee the ability to work for companies that don't compete directly, or to work for a competitor performing a different function. As a rule, the more senior an employee and the more specialized their work and knowledge of a company, the more restrictive and enforceable a non-compete clause can be.
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