What Is a Non-compete Agreement?
A non-compete agreement is a contract that prohibits an employee from working for or becoming a competitor for a certain period of time. Noncompete agreements are enforced when a relationship between an employer and employee ends and the employer wishes to prevent the employee from competing against them in their next position, whether working for a competitor in the same market or starting up another business in the same field (and recruiting the company’s workers to leave with them). Consultants and independent contractors who terminate their relationships with companies often are subject to noncompete clauses to avoid competition after the separation.
Employers also may seek non-compete agreements to protect themselves against former employees revealing secrets or sensitive information about operations, clients, customers, formulas, pricing, strategy, salary, methods and practices, ideas, future products, or public relations and marketing plans. Alternate names: Noncompete, noncompete clause, non-compete covenant, covenant not to compete.
How does a Non-compete Agreement work?
Non-compete agreements overall should be both fair and equitable for all parties. They require certain information in order to be considered enforceable:
A non-compete agreement is typically in effect for a certain period of time after employment ends. Noncompete agreements usually are considered legally binding as long as they have reasonable limitations, such as clear, realistic regions where employees may or may not work, or an exact amount of time that must pass before an employee may commence work in the field again.
An example of a non-compete agreement might involve a company that is one of only two or three such companies in a market that offers a specific product or service. The company may ask salespeople to sign a non-compete agreement because they don’t want those salespeople going to a direct competitor and trying to take their client list with them.