Employment Laws on Non-Compete Agreements
It is common workplace practice for employers to enter into non-compete agreements or employment contracts with non-compete clauses with their employees. Non-compete agreements typically preserve the employer's business interests and client relationships if the employee subsequently terminates employment. Non-compete clauses prohibit employees from soliciting current clients, working for directly competing companies or disclosing proprietary information. State laws vary as to enforceability, but most state courts enforce non-compete agreements if they are reasonable and specifically tailored.
Other People Are Reading
-
State Laws
-
Most states allow employers to enter into non-compete agreements or employment contracts with non-compete clauses if the terms of the agreement adhere to state laws. Some states, however, do not enforce non-compete clauses or agreements. States such as California view non-compete clauses as a violation of public policy to provide ample employment opportunities for employees in untenable employment situations. Additionally, states may view the clauses as unconscionable by handing over too much bargaining power to employers.
State Enforceability Requirements
-
Most states enforce a valid non-compete agreement or clause within an employment contract if the non-compete provisions are reasonable. These states require employers to strictly tailor the non-compete agreement to fit the employer's business needs. Considerations include geographical limits, duration of the agreement, consideration and potential liability for a new employer who hires an employee that violates a valid non-compete agreement.
-
Distance and Geography
-
Non-compete clauses generally contain geographical limits where the employee is limited from pursuing potential business opportunities within a certain geographical distance. Employment contracts that unreasonably limit the employee from pursuing alternate employment opportunities in too large a geographic area may be unenforceable. Employers who choose to prohibit future employment opportunities within a certain geographical area should reasonably tailor their agreements. For instance, a non-compete agreement limiting the employee from pursuing the same line of business within the entire state is probably unenforceable, since it is not reasonable and overly broad. Employers who use geographical limitations should limit future employment to a small, definable area.
Non-Compete Duration and Reasonableness
-
Courts typically enforce non-compete agreements that are effective for a limited time. For instance, an employment contract restricting future employment opportunities in perpetuity are not enforceable. Courts generally enforce agreements that are brief in duration, typically one year. Employers must reasonably restrict the non-compete clause to protect an employer's potential business opportunities. For instance, a law firm engaging an attorney may not limit the employee to pursue other legal employment since "legal employment" is overly broad and unreasonable. However, restricting the employee's ability to pursue current clients is reasonable and specifically tailored.
Additional Consideration
-
In contract law, consideration is something both employees provide or forego in exchange for the other party's promise. Some state laws require employers to offer additional consideration or benefit as an inducement for an employee to sign the non-compete clause. Conditioning the offer of employment on an employee's signing the employment contract is not sufficient consideration in these states. However, providing future advancement opportunities or promotion potential may provide additional consideration.
Warning
-
Since laws frequently change, you should not use this information as a substitute for legal advice. Seek advice through an attorney licensed to practice law in your jurisdiction.
-
