Legality of Noncompete Agreements

When a person gets a job offer, she is often elated and excited about the new prospect. If the employer asks her to sign a noncompetition agreement, the new employee may feel nervous or restricted in some way, as if the employer is limiting her ability to work. In general, the agreement is legal, but it must comply with the state's noncompetition agreement laws.

Purpose of a Noncompete Agreement

The purpose of a noncompete agreement is not to harass or intimidate an employee. Noncompete agreements are largely designed to prevent unfair competition among a business' competitors. A business may require a noncompete agreement to prevent an employee from taking trade secrets from the organization and seeking work with the organization's competition.

Noncompete Agreements are Legal

Noncompete agreements are generally legal. However, state laws typically place restrictions on the agreements' enforceability. In general, the employer should offer something of value to the employee for signing the agreement, and it should be negotiated fairly. Additionally, its enforceability may depend on the reason why an employee was fired. For example, in Missouri, courts generally will not enforce a noncompete agreement if the employee was fired without cause (according to the Missouri Bar Association). Further, the agreement must be limited in its geographic scope and duration.

Geographic Region

Reasonableness and common sense dictate the geographical limitations of a noncompete agreement. A court interpreting whether or not a noncompete is valid will typically look at several factors, such as the location of the business, the employee's job duties and the business' clientele. According to Stoel Rives, LLP, it may be reasonable to restrict a salesperson from competition in a designated sales territory pursuant to a valid noncompete agreement.

Time Limitation

Noncompete agreements must have a set duration, and the duration must also be reasonable. If the time duration imposes an undue hardship or burden on the employee, courts may not enforce it. According to Stoel Rives, the duration is generally reasonable if it represents the time it would take the business to train a replacement for the employee.

References

• Nolo: Noncompete Agreements -- How to Create an Agreement You Can Enforce
• "Journal of the Missouri Bar"; Noncompete Agreements, An Overview; William Corrigan, Jr.; May-June 1998
• Stoel Rives, LLP; Drafting Effective and Enforceable Noncompete Agreements: General Guidelines to Keep in Mind; Lauren Shurman; June 2007