Everything You Need to Know About Non-Compete Agreements

You’ve just been offered your dream job. You’ve negotiated your salary and benefits, and now all that’s left is hammering out the details.

As you’re going through the mountains of paperwork you need to sign, you come across something labeled “non-compete agreement.” What exactly is this, and what does it mean? Will it prevent you from building your career? And how enforceable is it? Most importantly, should you sign it?

Read on to find out the answers to these questions and more.

What is a non-compete agreement?

A non-compete agreement, also known as a non-compete clause, is a contract between an employer and employee or potential employee in which the employee agrees not to perform the same or similar work with a competitor of the business during and often for a period after employment. In many cases, it affects specific geographic regions in which the employee may perform the work.

How long is a non-compete agreement?

As part of the non-compete agreement, the employer must state upfront how long the contract remains in effect after employment. While there is no set minimum or maximum period of time stipulated for these agreements, in order for them to be valid and enforceable, employees must make the timeline realistic and ensure that it does not prevent workers from advancing in their careers.

The length of time a non-compete clause may reasonably be in effect depends on several factors, such as:

• The type of work the employee performs

• Whether the nature of the work required special training the employee received from the employer or as a benefit of her employment

• Whether the employee might share confidential information or secrets gained from the employer that could affect the business if used by a competitor

Why these clauses are popular

Employers generally establish non-compete agreements to prevent employees from competing against them by working with an established business or starting a new one in the same market, as well as passing on sensitive information or secrets about their business that might benefit a competitor or harm their own business.

Is a non-compete agreement legal in your state?

The legality and enforceability of non-compete clauses vary by state. For example, in California, North Carolina, and Oklahoma, these agreements are not legal except in some specific circumstances. In California, for instance, they may be used to prevent the employee from soliciting clients, customers, or coworkers away from the employer or to protect trade secrets. However, in other cases in California, an employee may sue an employer for requiring an employee to sign a non-compete agreement even if it is never enforced.

In many states, reasonable non-compete agreements are valid except in the cases of certain professions or industries. For example, in many states, physicians and/or broadcasters are exempted from these contracts.

You can find more information about the laws regarding non-compete agreements in your state here.

How enforceable is a non compete?

Again, the enforceability of non-compete clauses depends on the laws and restrictions in your state. In general, these agreements are considered legally binding as long as they are realistic in terms of the regions in which the employee may practice her trade and the amount of time she must wait before working with a competitor. For example, if the geographic region in which the employee wishes to work is not an area in which the employer conducts business, a court is unlikely to enforce the agreement.

The validity also depends on factors such as:

• The legitimacy of the reason for the employer establishing the contract

• The scope of the agreement 

• Whether the non-compete agreement will prevent you from performing a type of work different from what you have been doing
• Any benefits you received in exchange for signing the contract

• When the employer asked the employee to sign the contract; generally, if the employer asked the employee to sign the contract during rather than before employment with no additional benefits, such as severance pay, to the employee, a court will render the contract invalid

If a violation of a non-compete clause is taken to court, the court will weigh the need of the employer to protect its business interests against the burden it the agreement would place on the employee.

What is a standard non-compete agreement?

A standard non-compete agreement will state:

• The reasons for the agreement

• The beginning date and length of time the contract is in effect

• The geographic regions and locations where the agreement is in effect

• The scope of the agreement

• Any other terms, such as compensation given to the employee in exchange for signing the non-compete agreement

What to do if you’re asked to sign a non-compete agreement

In most cases, you will be asked to sign a non-compete clause only by a prospective employer, rather than a current one. If you are asked to sign one during your employment, it will likely be as part of the terms of a severance package, retention bonus, or other circumstance that carries some benefit to you.

Before you sign the contract, make sure to review it closely, reading it thoroughly so that you understand the terms. Remember that as long as the agreement is considered reasonable by your state, it is generally legally binding. You should think about how restrictive the contract will be in terms of your ability to perform similar work and career advancement. 

Review the state laws concerning non-compete agreements as well. If the contract isn’t legal according to your state law, don’t sign it. Inform the employer of the law instead.

It’s a good idea to have an attorney or someone else who is familiar with the laws concerning employment and the enforceability of such agreements review the contract before signing as well.

After reviewing the contract thoroughly and determining that you are comfortable with the terms, sign the contract. If you’re not comfortable with the terms or find that they are not legal in your state, discuss potential revisions with the employer.