A non-compete agreement typically prohibits a departing employee from working for competing companies for a certain period of time within a certain geographic area. Because an employee’s skills and experience are often most marketable to similar businesses, non-compete agreements can hamper an employee’s ability to make a living. Employers may try to include non-compete agreements in initial employment contracts, supplemental documents during employment, or in severance agreements.
Non-compete agreements can be enforceable, or not, depending on the circumstances. In general, a non-compete agreement might be unenforceable if it is not a valid contract, if it is more restrictive than necessary to protect the employer’s legitimate interests, if it is unduly harsh in limiting an employee’s ability to make a living, or if it is unreasonable in light of public policy.
If an employer did not give you anything of value in exchange for signing a non-compete, it may be unenforceable on the grounds that a valid contract was not formed. If the employer gave you something of value to sign the non-compete, it may be unenforceable if the restrictions are not reasonable. In assessing whether a particular non-compete is reasonable, courts may consider the employer’s legitimate business interests that warrant protection, as well as the function, geographic scope, and duration of the restriction. If the employer provided you something of value in exchange for signing the non-compete and the restrictions are reasonable, the agreement is likely enforceable.
Disputes over the enforceability of non-compete agreements often turn on the legitimacy of the interests the employer seeks to protect; the connection between those interests and the restraint on employment; the duration and geographic scope of the restrictions; the scope of work activities prohibited; or public policy concerns. The longer the time or larger the geographic area covered by the non-compete, the more likely it may be unreasonable. If a non-compete seeks to prevent the employee from doing work unrelated to his or her role with the former employer, the non-compete may be unreasonable for that reason. If the employee had to quit his or her job to avoid doing something illegal, the non-compete may be unenforceable for that reason.
Aside from restraints on future employment, employers may also require employees to sign agreements that restrict their ability to disclose confidential company information, or solicit company clients or employees after the end of employment. Confidential information is usually defined in the contract, and typically includes things like client lists, financial information, trade secrets, intellectual property, and business methods.
Because they restrain competition, non-solicitation agreements are analyzed similarly to non-competes, in terms of enforceability and reasonableness. However, because they are generally less restrictive on employees’ ability to make a living, and because of the business interests involved, non-solicitation agreements are more likely to be reasonable.
Non-disclosure agreements will generally be limited to information obtained through working for the employer, and will not prevent an employee from using information or skills learned outside or his or her work for the employer. The scope of the non-disclosure obligation will depend on the language of the contract, and, in some cases, public policy issues.