What Is a Non-Compete Agreement?

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What Is a Non-Compete Agreement?

A non-compete agreement is a contract in which one party promises not to compete in business or trade with another party. Also referred to as "non-compete clause" or "covenant not to compete," this type of agreements is similar to other contracts and must abide by the standard contract formation requirements.

When Are Non-Compete Agreements Used?

Non-compete agreements frequently come up in the following contexts:

How Would a Non-Compete Agreement Benefit Your Business?

Non-compete agreements can benefit your business in several ways. For example, they can:

Limitations on Anti-Compete Agreements

Not every non-compete agreement is enforceable. These agreements may not be legal when they unreasonably restrict free market competition or unreasonably limit a person’s ability to work.

Some states outlaw anti-compete agreements. For example, there is a California ban on covenants not to compete.

What Is Required for an Enforceable Non-Compete Agreement?

Anti-compete agreements must be reasonable in scope. For example, the agreement should only last for a reasonable, specified time period, such as one or two years following the termination of employment. Also, there should be geographic limits and specific limits concerning the areas of business that are included.

No agreement should be written to sound like its purpose is to punish employees. Instead, the agreement should be written so that its purpose is to prevent the disclosure of sensitive information.

As an Employee, Can I Negotiate the Terms of the Agreement?

If you are an employee who is required to sign a non-compete agreement as a condition of employment, you may be able to negotiate a less limiting agreement. For example:

If you’re already employed and your current employer asks you to sign a non-compete agreement, you may try to negotiate receiving some benefit (i.e., a raise or a promotion) in return. The drawback is that receiving a benefit in return for signing a non-compete agreement makes it harder to challenge the agreement down the road.

Try to limit the situations where the non-compete agreement is triggered.

When to Seek Legal Help?

If you encounter questions or problems concerning non-compete agreements, you should consult a qualified employment lawyer or a non-compete employment lawyer.

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Last Modified: 08-24-2016 10:14 PM PDT

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