A non-compete agreement is a legal agreement that prevents employees from sharing intellectual trade secrets or engaging with competitors for a specific time, even after employment ends.
This agreement can prohibit an employee or partner from directly or indirectly competing with a company. A noncompete clause may also be included in certain types of employment contracts to protect the competitive advantage of employers.
Read on for 7 important things to look for in any noncompetition agreement you may sign as part of an employment contract.
1. Length of the Agreement
It is important to know the specific length of the agreement, including how long it may be in place after employment ends. For example, noncompetition agreements typically last from 6 months to a year, though some may last two or more years.
The signer should be 100% certain of how long they are legally obligated to uphold this agreement. Without a measurable time frame, it is not possible for the employer to legally enforce any obligations in the agreement.
Non-compete agreements can also persist after a person leaves the company, making it difficult for them to secure employment for several months after their contract ends.
Make sure that you know how this non-agreement clause could impact your employment whether you are terminated or decide to exit the company.
Here is an article about a noncompetition agreement in employment contracts.
2. Consequences of Breaching the Agreement
Breaching a noncompete agreement could include sharing intellectual trade secrets, engaging with competitors, or starting a competitive business.
Consequences for breaching a noncompetition agreement may include penalties such as:
- A court-ordered mandate to stop a certain behavior, also known as an injunction
- Lawsuits
- Monetary penalties
Here is an article
where you can learn more about the injunction.
3. Scope of the Agreement
The scope of a non-competition agreement includes a description of what constitutes “competition.”
For example, the agreement may prohibit the employee from activities such as:
- Publishing certain information
- Sharing data
- Using any trademarked or intellectual property for their gain
The scope of the agreement should also specify what services and conditions are not permissible while the contract is active.
In some cases, a non-competition agreement is no longer valid after an employee is terminated without just cause, but this varies by state.
Here is an article that illustrates what a typical non-compete agreement looks like.
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4. Geographical Limit of the Agreement
Many people are unaware of when they sign a non-compete agreement because there may be geographic restrictions.
Under these limitations, you cannot work for a competing business close to your current employer.
Geographical limits protect an employer but can negatively affect your job prospects after leaving a company.
Be mindful of how these geographical regions could affect your job stability if you left the job or were terminated. Many states still enforce non-compete agreements if you are fired or laid off.
Here is an article where you can learn more about geographical limits and non-competition agreements.
5. Specified Competitors
The agreement should specify what competitors, companies, and/or individuals the signee is not allowed to interact with during the period of the noncompetition agreement.
For example, a computer software company may list specific competitors their employee is not allowed to engage with during their agreement. This includes networking with employees of the competitor’s company and working for them.
Here is an article that explains how to define competitors in business.
See Non-Competition Agreement Pricing by State
- Alabama
- Alaska
- Arizona
- Arkansas
- California
- Colorado
- Connecticut
- Delaware
- District of Columbia
- Florida
- Georgia
- Hawaii
- Idaho
- Illinois
- Indiana
- Iowa
- Kansas
- Kentucky
- Louisiana
- Maine
- Maryland
- Massachusetts
- Michigan
- Minnesota
- Mississippi
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- Nevada
- New Hampshire
- New Jersey
- New Mexico
- New York
- North Carolina
- North Dakota
- Ohio
- Oklahoma
- Oregon
- Pennsylvania
- Rhode Island
- South Carolina
- South Dakota
- Tennessee
- Texas
- Utah
- Vermont
- Virginia
- Washington
- West Virginia
- Wisconsin
- Wyoming
6. Limitations of the Employer
Although the non-compete agreement can protect an employer’s business, it does have limitations.
An employer cannot violate an employee’s privacy or civil rights in any way; they also cannot enforce anything beyond the scope of protecting their business entity.
Employers may also not enforce rules or guidelines that cause psychological stress or emotional harm to employees.
There must also be a reasonable radius for geographic descriptions. For example, it would be unreasonable for an employer to require an employee to work in a new county after leaving their organization. They may, however, be able to require the employee to work at least 5 miles away from their headquarters.
The timeline must also be reasonable. Most non-competition agreements do not go beyond 2 years. Anything longer than that may be considered unreasonable.
Here is an article that can help you negotiate the terms of a non-competition agreement.
7. Negotiable Terms
Negotiable terms should always be available for the signee prior to committing to any non-compete contract.
These terms are likely to be limited to time and geographic restrictions. You may also negotiate for a non-solicitation agreement instead of a strict non-compete clause.
A non-solicitation agreement offers employees greater flexibility after they leave their job; it makes it easier for them to find work sooner in the industry, even with a competitor of their former employer.
Here is an article by Harvard Law School that can help you learn how to negotiate non-competition agreements better.
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