What Do I Need to Know About A Non-Compete Agreement?

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Many have been asked to sign non-compete agreements or thought they might be a good idea to protect their business interests when hiring someone. But, what do they do? How are they enforced? What legal requirements do they have to follow?

In simplest terms, a non-compete agreement is a contract between an employer and employee or contractor in which the employee/contractor agrees to avoid certain actions that could undermine the business interests of the employer. To be valid, a non-compete agreement has to be limited in geographic scope and time duration. They are intended to prevent an employee from divulging trade secrets or luring away clients, not to make it impossible for them to continue to pursue their career with another company or their own business.

Some employers have a tendency to interpret this area of law in an overly broad fashion. They believe that the employee/contractor cannot work for a competitor under any circumstances, believe their non-compete applies indefinitely, or that it applies to things that are not actually secrets. In fact, non-compete agreements are usually strictly construed by courts and much more limited in scope than many believe. In fact, if not faced with some act of gross and obvious misconduct, many courts are reluctant to enforce non-compete agreements.

In preparing or negotiating a non-compete agreement, one should keep in mind the following:

1. Non-compete agreements are generally not favored by the courts and will be strictly construed against the employer. Courts often consider non-compete agreements to be restraints on trade and unreasonable restrictions on an employee's ability to earn a living.

2. The most common basis for modifying or voiding a non-compete agreement is an unreasonable term or geographical scope. If the term is indefinite or too long, or if the geographical scope is not limited to a fairly tight area, the non-compete will likely be voided or modified.

3. The non-compete agreement needs to be reasonably necessary to achieve a legitimate business interest. A non-compete is not likely to be upheld against a janitor for an office building to keep him from cleaning neighboring office buildings that pay better.

If you are considering preparing a non-compete agreement for your business, you may wish to speak with your corporate counsel. These are usually relatively straightforward agreements to prepare, so the legal fees should not be extreme, but the money spent now may save thousands in legal fees later if you need to enforce the agreement against someone. On the other hand, if you are an employee or contractor being asked to sign such an agreement, you should read it carefully to ensure you understand its terms clearly. It may also be necessary to contact an attorney of your own if you do not understand the terms or believe they may be illegal or overly restrictive. Of course, legal representation is almost essential if a dispute arises pertaining to a purported violation of a non-compete.

For a list of attorneys in your area that focus their practice on employment law, please visit the Law Firms page of our website at HG.org.

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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer.

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