Noncompete Clause In An Employment Contract
It is relatively common for an employer to ask an employee to sign employment contracts that include a noncompete clause. Each state has their own restrictions, laws, and standards when it comes to noncompete clauses. In some states, these clauses are unenforceable.
However, these agreements have specific implications that can affect an employee’s future after leaving the company. Signing a noncompete agreement has important ramifications that should be discussed with employment lawyers beforehand.
A legal professional has the experience and knowledge to conduct a thorough analysis of the contract to understand what it indicates and how it can apply to future situations. If the language is vague or the terms are unacceptable, he or she can also help you with the negotiation process.
What is a Noncompete Clause?
A non-compete clause, also known as a noncompete agreement or non-competition agreement, is an employment contract where the employee agrees to not compete with the employer for a specific period and location upon resignation or termination. These types of employment contracts also prohibit the employee from revealing trade secrets or internal company information.
The most significant benefit of employment contracts is the trade of consideration. Although the employee is giving up his or her ability to seek certain types of employment after leaving the job, they will also have an opportunity to receive compensation for their compromise. Employers may require employees to sign a noncompete agreement to safeguard their competitive advantage in the market.
Understanding Noncompete Clauses
Noncompete clauses are signed at the start of an employer and employee relationship. Doing so gives the hiring company managerial direction and control over the former employee’s specific actions upon leaving the company. These clauses generally state that the employee will not engage in competitive activities.
Some prohibited competitive activities may include:
- Working for a competitor company or competing individual
- Starting a company offering the same services or products
- Recruiting former colleagues to work for you in a non-solicitation agreement
- Working with a specific geographic region for a particular industry
- Conducting business within a specific market
- Developing competing products
- Acting as a manager or director of a competitor
Noncompete agreements should be drafted and signed with the best interests of both parties in mind. It is vital that the contract does not place undue or unlawful limitations on the employee if they wish to leave. For example, an employee may receive additional pay in exchange for signing a noncompete agreement.
The Elements of a Noncompete Clause
As more businesses and individuals utilize noncompete clauses, it is critical to ensure that these types of employment contracts are well-written and comprehensive. A poorly drafted and executed noncompete clause can create future legal problems filed by either the employer or employee.
While there are no standard noncompete clauses that you must write, the following four components will ensure that your agreement includes the minimal requirements:
- Employment: The noncompete clause should include the restrictions placed on employment post resignation or termination, including prohibited industries and roles. Review this section carefully with employment lawyers to ensure legal compliance since it imposes the most restriction on your employment. Check with your state’s laws to determine if these provisions are enforceable in the first place.
- Time: A company cannot demand an employee not to engage in competitive activities indefinitely. The noncompete clauses must also indicate a specific amount of time for which it is in effect after you leave. This time typically lasts for a year or two but is not to be unduly burdensome.
- Location: Employers can also be specific to the geographic area in which an employee is prohibited from seeking employment. In many cases, the employee is not permitted to conduct competitive business activities within the same state.
- Competitors: In specific industries, a noncompete clause will offer comprehensive details, including the names of particular companies that the employee cannot work for upon leaving.
The reason for attention and litigation around noncompete clauses is that these documents are often drafted poorly and copied from other business’ contracts, which can leave unintended language in the agreement. Hire an employment attorney in your state that can review the drafting or review of a noncompete clause.
Why Noncompete Clauses are Important
Noncompete clauses for employers help companies protect trade secrets and internal company information while also using it as a retention tool in preventing talent from moving to a competitor. Making it more challenging for an employee to leave means that the company will retain its investment longer.
On the other hand, noncompete clauses for employees are essential for different reasons. Employees must also receive something in exchange for their agreement to not compete in a specific location for a certain period. The noncompete clause may also indicate an employer’s commitment to retaining talent.
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Is A Noncompete Clause Enforceable
When it comes to restricting future work opportunities, each state has a different approach to noncompete clauses. They are typically used as a way to prevent unfair competition. However, other states view them as an infringement on civil rights.
Noncompete clauses can make it difficult for an employee to seek employment without relocating or joining a new industry. However, noncompete clauses do not necessarily make it impossible for an employee to seek employment. This information is critical to understand since it can negatively impact a career that one has taken a lifetime to build, so it is best to have a lawyer review the noncompete clause, so you clearly understand what you are signing.
There are also several states enacting policies restricting noncompete clauses to specific types of employment. If you have questions about noncompete clauses that apply to your situation, speak with a licensed attorney in your state. For example, if you live in California, discuss your matter with California employment lawyers.
Non-Compete Clause Samples
Noncompete clauses can be as specific or brief for the particular types of employment relevant to the situation. While the noncompete clause examples below are short, it will help you understand the basics of what should be included in employment contracts.
Non-Compete Clause Sample 1
Noncompete Clause: Employee acknowledges that the relationship with the Employer includes the disclosure of trade secrets. Employer recognizes that the Employee’s services are under at-will employment and are extraordinary. The Employee agrees not to manage, participate in, or control competitors’ services for two (2) years in the State following the resignation or termination of services. Employee acknowledges this agreement by initialing below and signing on page five (5).
Non-Compete Clause Sample 2
Noncompete Agreement: During the Restriction Period, the Employee agrees to not engage in competitive activities, including employment with competitors, acting as an officer or director, or selling services similar to those of the Company within the Restricted Territory. The Restriction period will last for one (1) year upon Employee’s termination or resignation under the doctrine of at-will employment laws of the State. The Restricted Territory shall include a radius of two hundred and fifty (250) miles around the principal office. Employee’s signature confirms an acknowledgment of the Noncompete Agreement herein.
Getting Help With A Noncompete Clause
As you can see, there are specific laws that vary throughout the United States when it comes to noncompete clauses. If you are an employer or company, it is imperative that you do not violate your workforce’s state and federal rights. Employees should also review agreements with employment lawyers to ensure that they are enforceable and valid.
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