Non-compete agreements may be enforceable and are something that workers and professionals who have entered into one should understand. Because non-compete agreements generally impact the employee after they have left their job with the employer, workers and professionals who have entered into a non-compete agreement should understand the basics of such agreements.
Requirements for non-compete agreements
There are several requirements for a non-compete agreement to be valid including:
- The agreement must be supported by consideration at the time it is signed;
- The agreement must protect a legitimate business interest of the employer; and
- The agreement must be reasonable in scope, geography and time.
The consideration requirements generally requires that the non-compete agreement must be supported by valid consideration. The employee entering into the non-compete agreement must receive something of value in exchange for their promise not to compete in the future.
If the employee signs the non-compete agreement prior to employment, the job is typically considered valid consideration. If the agreement is signed following employment, something additional of value, such as a promotion, will be needed to meet the consideration requirement.
What does a non-compete agreement do?
A legitimate business interest of the employer can include protecting the goodwill of the business, a trade secret or other confidential information. These can be considered legitimate business interested protected in a non-compete agreement.
When determining if the non-compete agreement is reasonable, the interests of the employer in protecting legitimate business interests will be balanced against the burden it places on employee. The reasonableness of the scope and duration of a non-compete agreement will be evaluated contextually in each situation and if a non-compete is found to be overbroad, the scope and duration may be limited.
Agreements that require the employee to refrain from competing can be an important interest for both the employee and the employer. It is beneficial for both to be familiar with employment laws and how they can help protect their interests through a non-compete agreement.