Noncompete Agreement

Jump to Section

Need help with a Noncompete Agreement?

CREATE A FREE PROJECT POSTING
Post Project Now

What Is a Noncompete Agreement?

A noncompete agreement — also known as a noncompete covenant, a covenant not to compete, restrictive covenant, or noncompete clause — is a legal contract between employees and an employer that prevents employees from entering into competing business ventures if they terminate their employment. Businesses may ask new employees to sign this type of agreement to ensure that they don't take the knowledge, skills, and relationships that they gain on the job and use them to set up business as a direct competitor. Employees gain distinct knowledge of their industries, which could make them formidable competitors, as they're aware of the following:

  • Pricing strategies
  • Workflows
  • Product formulas
  • Client information
  • Salaries
  • Business methods
  • Pending products
  • Research and development information
  • Marketing strategies and plans

While a noncompete agreement offers advantages for the business, it may not be as appealing to an employee. A company doesn't necessarily want to lose the valuable investment made into the training, education, and development of an employee. However, these individuals must still retain the basic right to seek other employment opportunities and pursue professional advancement.

Where Are Noncompete Agreements Allowed?

Noncompete agreements are not allowed in all states. This type of contract is unenforceable in the following states:

  • North Dakota
  • Oklahoma
  • California

Employers in these states may still ask employees to sign this type of contract in the hopes that the individuals are unaware of their rights and will believe that they cannot legally compete with the business. In California, an employer who requires their employees to sign a noncompete agreement can be sued.

Other states may allow noncompete agreements but confine them to particular industries or circumstances. Do some research on your local laws and understand what's applicable in your state.

What's Included in a Noncompete Agreement?

A noncompete agreement has a few basic parts that include the following:

  • The date the agreement becomes effective : This date is typically the first date of employment for a new hire. However, some noncompete agreements are executed later in the employee's term. This contract may become necessary before an employee earns a promotion or comes into contact with sensitive business information.
  • The reason for the agreement : The employer must specify the scope of the noncompete agreement and the purpose for this contract. A noncompete agreement makes more sense for a high-level employee who will work with sensitive company information than for an hourly worker with minimal responsibilities.
  • The duration of the agreement : Noncompete agreements must be reasonable. These agreements are typically limited to a year or two after employees terminate their employment with the company.
  • Compensation for complying with the terms : For a new hire, the job itself is usually considered adequate compensation for agreeing to the terms of the noncompete agreement. However, if you're asked to sign a noncompete agreement for a job you're already working in, you may want to ask for a promotion, raise, or other benefits in exchange for your signature on the contract. Some states require a payment of consideration in exchange for signing a noncompete agreement. Courts are more likely to uphold the agreement if the employee received some type of compensation.

The noncompete agreement should also include any relevant specifications regarding the type of competition prohibited. For example, the employee may not be allowed to work for a competitor within a particular region or industry. Jobs that fall outside of the geographical area or specialized industry, however, may be acceptable. The employer may also specify particular companies for which an employee cannot work.

Determining Whether a Noncompete Agreement Is Reasonable

For a court to uphold a noncompete agreement , it must deem the contract reasonable. It is not reasonable for an employee to enforce restrictions so confining that an individual cannot find gainful employment outside the current job. People have the right to earn a living, and the noncompete agreement cannot take this right away from them.

When a court is evaluating a noncompete agreement to determine whether it's reasonable and enforceable, it will consider whether:

  • The employer has a legitimate need to protect his or her business interests
  • The geographical scope is reasonable in size
  • Employees can find other employment opportunities that will not force them to violate the contract
  • The term of the noncompete agreement is appropriately limited
  • The agreement is unreasonably broad regarding the type of work prohibited

These factors are considered both individually and in conjunction with one another. A long-term agreement is more likely to be enforceable if it's paired with a small geographical scope. Likewise, a noncompete agreement that covers a broad range of companies has a better chance of standing up in court if it applies only for a month.

An employer cannot typically enforce a noncompete agreement executed simply to keep its employees from leaving the business. The company must prove that it has a legitimate reason to be concerned about employees taking jobs elsewhere. For example, if employees have knowledge about a secret recipe for a major product or have close relationships with and sensitive details about a business's top clients, they could present a notable risk to the company if they took the information elsewhere.

Noncompete Agreements and the Sale of a Business

If a business is sold to new owners, noncompete agreements may come into play. The entity that acquires a business is often wise about having employees retained within the business sign a noncompete agreement. Lacking this form of protection, the previous owners of the business may poach employees and set up direct competition.

If employees were previously subject to a noncompete agreement, a purchaser would want to investigate these contracts when acquiring the company. The new noncompete agreement must include an assignment provision that allows the new business owner to maintain the contract under new management. If such a provision is not in place, the previous noncompete agreement may become void.

How Are Noncompete Agreements Enforced?

If you want to be released from a noncompete agreement, you should speak with your employer and get a signed document that releases you from the contract. Lacking this document, you are subject to the enforcement of this contract.

Your previous employer may request an injunction or restraining order preventing you from taking any type of employment that falls within the limits of the noncompete agreement. Courts often expedite these cases to protect the employer from potential damage. You may have only days or weeks to prepare your case with an employment lawyer if a hearing is scheduled.

A court may begin by issuing a temporary order that prevents you from taking a particular job. Likewise, the court might deem that your activities are temporarily permitted, but continue to investigate the case. The court may choose to grant an injunction, a legal order that will stop you from working in violation of the noncompete agreement. This injunction can restrict your activities for any period of time set forth by the court.

A noncompete agreement is a beneficial contract for employers in particular situations where an employee could do significant harm to a business by taking knowledge to a competitor. If you're asked to sign a noncompete agreement, review the document carefully to make sure it's valid within your state and does not prohibit you from taking reasonable actions to further your career.



Explore Our Network of Lawyers

We recruit and onboard great lawyers so you can find and hire them easily.

Browse Lawyers Now

Meet some of our Noncompete Agreement Lawyers

ContractsCounsel verified
Managing Member
38 years practicing
Free Consultation

I have been practicing law for 35 years. In addition to my law degree, I hold an MBA. I've created six companies, currently act as outside counsel to another 12, and have been an advisor to more than 100 startups and entrepreneurs.

ContractsCounsel verified
Business Contract Attorney & Arbitrator
21 years practicing
Free Consultation

I am a licensed and active Business Attorney, with over 20 years of diverse legal and business experience. I specialize in contract review, drafting, negotiations, ecommerce business transactions, breach of contract issues, contract dispute and arbitration. I am licensed to practice in New York and Connecticut. I am a FINRA and NCDS Arbitrator. My experience includes serving as General Counsel to small businesses. I negotiate, draft and review a wide array of commercial contracts; provide business strategy and employment advice and assist in the sale of businesses entities. I work extensively with various kinds of contracts. In reviewing agreements, I conduct risk analysis of contract and interpret the terms and conditions so that clients understand exactly what their obligations are under the agreement and are protected as much as the law requires. I am detailed and thorough in my review and drafting of agreements. Additionally, I advise clients on how to limit their liability and lower their contractual risk. I specialize in breach of contract issues and arbitration. I have been a Hearing Officer, presiding over cases and rendering written decisions; a Civil Court Arbitrator presiding over cases in contract law, commercial law, etc., a Judicial Clerk in Civil Court; a Vice President at an Investment Bank and an Attorney at top AML law firms.

ContractsCounsel verified
Attorney-at-law and Certified Public Accountant
25 years practicing
Free Consultation

Carlos Colón-Machargo is a fully bilingual (English-Spanish) attorney-at-law and Certified Public Accountant (CPA) with over twenty years of experience. His major areas of practice include labor and employment law; business law; corporate, contract and tax law; and estate planning. He is currently admitted to practice law in Georgia, Florida, the District of Columbia and Puerto Rico and currently licensed as a CPA in Florida. He received a Master of Laws from the Georgetown University Law Center in 1997, where he concentrated in Labor and Employment Law (LL. M. in Labor and Employment Law) and a Juris Doctor, cum laude, from the Inter American University.

ContractsCounsel verified
Attorney
10 years practicing
Free Consultation

Graduate of Georgetown Law (J.D. and LL.M in Taxation) Injury Claims Adjuster before law school for top insurer Eight plus years of legal experience Past roles: Associate at premier boutique law firm in the DC metro area Policy Associate at a large academic and research institution Solo Practice Areas of Expertise: Contracts Business Formation Trusts and Estates Demand Letters Entertainment Transactions

ContractsCounsel verified
Attorney
18 years practicing
Free Consultation

As a business law attorney serving Coral Springs, Parkland, and Broward County, FL, Matthew has been recognized as “AV” rated, which is the highest rating an attorney can achieve through Martindale’s Peer Review system. Year after year Matthew is listed in the “Legal Leaders” publication as a top-rated attorney in South Florida in the areas of litigation, commercial litigation, and real estate. Matthew is also a graduate and instructor of the Kaufman Foundation’s FastTrac NewVenture Program, presented by the Broward County Office of Economic and Small Business Development.

ContractsCounsel verified
Managing Partner
6 years practicing
Free Consultation

John Benemerito is the Founder and Managing Partner of Benemerito Attorneys at Law. Admitted to practice in New York and New Jersey, John represents small business owners and startups in the areas of Business and Securities Law. John received his Bachelors Degree at John Jay College of Criminal Justice where he majored in Criminal Justice. Afterwards, he attended New York Law School where he focused his studies on Corporate and Securities Law. John comes from a family of entrepreneurs. From as far back as he can remember he was always involved in his family’s numerous businesses. At the age of fifteen, John entered into a new business venture with his father and managed to grow and maintain that business through high school, college and law school.John is currently a co founder in over five different businesses. After law school, John decided that he wanted to help people like himself. He opened his own law practice and began working primarily with small business owners until he was introduced into the startup world. Ever since that time, John has worked with hundreds of startups and thousands of entrepreneurs from all different backgrounds in helping them achieve their goals. Having been an entrepreneur his entire life, John understands what it takes to create and maintain a successful business. He enjoys sitting down and working with his clients in figuring out each of their unique challenges.

ContractsCounsel verified
Attorney
11 years practicing
Free Consultation

California-based small business attorney handling matters related to securities, mergers & acquisitions, corporate governance, and other business transactions.

Find the best lawyer for your project

Browse Lawyers Now

Want to speak to someone?

Get in touch below and we will schedule a time to connect!

Request a call