Non Compete Agreements: What You Need to Know
A non-compete agreement is a contract that is generally agreed to between an employer and new employee or existing employee while in the course of their work, but which doesn’t actually take effect until the employee leaves the company. These agreements are generally intended to protect trade secrets or customer relationships and are designed for the protection of the employer, but they are often difficult to uphold. The courts have a tendency to disapprove of these contracts on the basis of the limits that they place on an employee’s ability to continue to earn a living in the same field, so when a non-compete contract is litigated, the burden lies on the employer to prove that they are being harmed.
There are three key elements required for a non-compete agreement to be considered legally valid. These are:
- It must be reasonable in terms of its scope, geography and time period
- It must legitimately protect the business interests of the employer
- It must have been supported by consideration when it was originally signed
Though each of these is important, reasonableness is often the deciding factor for the courts in deciding whether to uphold a non-compete agreement. Though it is accepted that an employer has an interest in protecting their trade secrets and goodwill, it needs to be balanced by not putting an unreasonable burden on the employee’s ability to find another job. This is determined on a case-by-case basis because the elements of time, scope and geography may have different meaning or importance based on a specific situation. The court will often determine that a specific clause within a non-compete contract is overly broad and will modify it in order to allow the ex-employee more flexibility, or they may deem it an unreasonable attempt to prevent legitimate business competition and refuse to enforce it in its entirety.
Beyond the element of reasonableness, the question of whether a non-compete agreement legitimately protects the business interests of the employer refers to both customer relations and the protection of confidential information. Protecting goodwill can be difficult as it is an intangible. In order to prove the latter, the employer will need to prove that in addition to the contract, they have taken other steps to protect information. The requirement of valid consideration is generally met by the employment itself, though this is not the case for employers who require employees to sign these contracts after they have already been employed. In these instances there is a need for the employer pursuing a non-compete agreement to have offered another form of consideration, such as a promotion or additional job perk, in exchange for having signed the contract.
Whether you are an employer who is concerned about preserving trade secrets or clients, or a former employee who is worried about your ability to work within your chosen field, speaking with an experienced attorney about the terms of a non-compete agreement is your best way of ensuring your rights. Contact us today to set up a convenient appointment.
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