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As part of your employment contract, you may have signed an agreement not to compete. These agreements give employers the protection they need to prevent employees from jumping ship to a competitor and bringing along any skills, information, client lists, and secrets they may have obtained from their previous employer. Employers need not worry about competitors poaching their most valuable employees to their detriment. However, these agreements inhibit an individual’s freedom to choose their own place of employment, and are oftentimes harsh or overly broad. As a result, such agreements are frequently contested in court. How do you know if your non-compete agreement is enforceable?
Primarily, a non-compete agreement must be reasonable in scope. This is determined by whether it protects a legitimate business interest, doesn’t place an undue hardship on the employee, and doesn’t violate public policy.
A business that has a near-permanent relationship with its clients, such as physicians or insurance companies, has an interest in protecting their continued business with the client and may restrict an employee from attracting their clients to their new employer. Similarly, if an employee has learned trade secrets or confidential information, their employer may restrict their freedom to work for a competitor in order to protect this information. A clause that prohibits a former employee from doing any activity with a competitor, even activities that aren’t a threat to their interests, may be considered too broad to be enforceable.
For example, an enforceable agreement may prevent a salesman or a researcher from taking a job with a competitor for the same position, and bring his clients or expertise to his new job. However, an agreement that prevents a salesman or a researcher from going to a competitor to work as a mechanic may be unenforceable, as the expertise he will be applying at his new job wasn’t acquired at his old job and isn’t a threat to his former employer’s interests.
Additionally, the agreement not to compete must not impose undue hardship on the employee. A clause prohibiting the employee from working for a competitor in a 10 mile radius may be acceptable, but one that prohibits him from working for any competitor in North America may not.
Finally, the agreement must not go against public policy. Agreements that are illegal, give employers virtual monopolies on the workforce in that field or location, or unduly deprive an employee from choosing to go work elsewhere may be unenforceable.
All agreements must be supported by independent consideration—in other words, getting something in return for your promise to adhere to the agreement. Most of the time, the offer to hire in return for accepting the non-compete agreement is sufficient. If you are already hired and are offered a non-compete agreement, continued employment with the employer or a monetary payment can also be acceptable.
Though it may seem like non-compete agreements are easily contested, in reality most agreements are upheld. Contracts in general are highly valued by the courts, as they are hesitant to override an independent agreement between two private entities. Determining whether an agreement is reasonable is done on a case-by-case basis and you should contact an attorney before deciding to leave an employer with which you have a non-compete agreement.