Generally, by signing a covenant not to compete, an employee agrees that if she leaves the employer, she will not go to work for the employer's direct competitors. The employee may or may not receive compensation for signing the agreement.
Covenants not to compete are also known as "non-compete clauses." For some businesses and companies that have a unique trade, a non-compete agreement may be necessary for the protection of the company’s business plans, trade secrets, and confidential information. It is also a way of ensuring that they won’t lose their employees to similar businesses.
Businesses that typically use covenants not to compete include those dealing with:
Typical Restrictions in a Covenant not to Compete agreement may relate to:
Non-compete agreements frequently come up in the following contexts:
A covenant not to complete agreement is usually part of the employer to employee’s general employment contract. It may be signed as a separate agreement. They are usually treated in the same way as any other contract. Non-compete agreements or covenants not to compete contain information such as:
It is difficult to determine whether a judge will enforce a non-competition agreement. While the secrets of an employer are valuable, the legal system also places value on an individual's freedom to pursue other employment. To be enforceable, courts usually require that a covenant not to compete be reasonable.
A convent not to compete will be considered unreasonable (i.e. not enforceable) when:
A court may choose to overturn an overly restrictive non-compete covenant or they may instead chose to “save” the provision by re-writing it in a less restrictive way.
Certain states, such as California, dispute the legality of non-compete covenants as a matter of public policy. In those states, courts will overturn the provision unless the employer can meet at least one of the state’s exceptions to non-compete covenants.
Generally, an employer can end a relationship with an employee or a prospective employee if the employee or candidate doesn’t agree to a legal term of a contract. However, in states that dispute the legality of non-compete covenants, rejecting or terminating an employee who refuses to sign a non-compete covenant may be regarded as wrongful retaliation.
No. Not all states allow covenant not to complete in employment contracts because they believe its unfair to the employee if they are limited in their freedom to work. Some states are contesting the idea of non-compete clauses, stating that it may be unfair to limit workers to employment opportunities in a contract.
An example of this is California's ban on non-compete covenants. Thus, you may wish to check the laws of your state if you have any questions or concerns regarding a non-compete covenant. You may also wish to hire a lawyer if you need further advice.
Before signing anything that may restrict your future employment access, it is wise to have an attorney review the document. An experienced employment lawyer can also advise whether you can go work for a competitor under your current employment contract.
Last Modified: 02-03-2016 12:10 PM PSTLaw Library Disclaimer
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