What is a non-competition agreement?

One of the more common clauses in business law related to employment is the non-competition agreement. Whether you are looking to find a new job or if you are looking to hire an employee, it is important to understand non-competition agreements and what they cover and what they do not. Generally, non-competition agreements are designed to protect the interests of the employer, but they cannot unreasonably prevent an employee from earning a living after leaving the company. 

The idea behind the non-competition agreement is to protect the employer should the employee leave the company and decide to start his or her own business. Largely, it consists of protecting trade secrets of the employer and potentially protecting the employer from having clients poached by the employee. However, several things need to be in place an order for non-compete agreements to be considered valid. 

The main sticking point of most non-compete agreements is the reasonability clause.

Essentially, a non-compete agreement needs to narrowly protect the interests of the employer. The question isn’t as much about the restriction as it is about the scope of that restriction. For example, a non-compete clause that prohibits an employee from working in the field anywhere in the country, or for an unreasonable period of time, after that employee leaves a particular employer is unlikely to hold up in court because those restrictions are too board.

Additionally, there must be something valuable given in exchange for the employee agreeing to sign a non-compete clause (this is called “consideration”). If the employee is being hired, the thing of value is the employment itself. However, if the employer wishes the employee to sign a non-compete agreement later on, the employee must receive some new thing of value for agreeing, such as a promotion.