Legality of Non Competition Agreements
While non-compete agreements are legal, courts will often refuse to enforce such agreements if their restrictions are too broad. Those with specific legal questions on non-competition should consult an attorney.
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Non-Compete Agreements
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Although each non-compete agreement is different, an employee who signs one generally promises that, after leaving the company, he will not open a directly competing business, or go to work for such a business nearby.
Contract Issues
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A non-compete agreement is a legal contract; regardless of the contract's specific contents, a court will not enforce it unless it meets all of the state's contract law requirements for a valid contract.
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Public Policy Issues
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Because a non-compete agreement is effectively a restraint on trade, courts are often reluctant to enforce them. In most jurisdictions, courts only enforce non-compete agreements whose restrictions, both geographical and temporal, are very narrow in scope.
Example
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John is a mechanic in a small town. His new employee, Bob, signs a contract not to compete within a 500-mile radius for five years after leaving the company. If Bob opens a new business in town and John sues, most courts probably would not enforce the contract. Its geographical radius is far too wide, and one year of non-competition is the typical limit of court approval.
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References
- "Cases and Materials on Contracts, Sixth Edition"; Farnsworth, E. Allan and William F. Young, Jr. and Carol Sanger and Neil B. Cohen and Richard Brooks; Foundation Press; 2002
- Restatement (Second) of Contracts, Section 188: Ancillary Restraints on Competition
- Law Memo: Covenants Not to Compete; Wirtz, David M.
Resources
- Photo Credit firma contract 10509 image by pablo from Fotolia.com
