Non-Compete Agreements: Legal Implications & Employee Rights

What Is a Non-Compete Agreement?

Most employers forbid employees from competing with the company while on the job. But some employers go further, requiring employees to agree not to start their businesses or go to work for a competitor after they leave their employment with the company.

Employers request new employees to agree to and sign a non-compete agreement with the company as a condition of their employment.

These contracts are called “Covenants Not to Compete” or “Non-Compete Agreements.” These contracts are entered into before employment or at the time employment ends with the company.

Employers cleverly request the terminated employee to sign a non-compete agreement as part of a severance package and release of all claims. Employers use the leverage of paying severance to the terminated employee in exchange for having the employee legally promise not to compete.

Non-Compete Agreements Usually Include

• Restricting the employee from working for a competitor.
• Preventing the employee from starting their own business selling a substantially similar product or service.
• Restricting the employee from later establishing a similar brand image.
• Restricting the employee from recruiting other employees to join their new business.
• Restricting the employee from contacting the employer’s existing customers to solicit business.
• Restricting the employee from using the employer’s confidential information for their own advantage.
• Restricting the employee from ever using the appropriating the employer’s trade secrets.

Non-Compete agreements are not always legal

It depends on your state’s jurisdiction and the contract’s terms, conditions, and covenants that were agreed to.

In some states, non-compete agreements are unenforceable because those states, as a matter of public policy, do not favor preventing or restricting their workers from earning a living. Likewise, states do not favor their workers being forced to work for one particular company.

Other states allow non-compete agreements because they agree with employers who want to protect their businesses from competition from former employees.

But even in these states, if the non-compete agreement stops a worker from competing in any form or for too long a period, it will probably not be enforceable because such a restriction violates a worker’s freedom to work.

Example of an unenforceable non-compete clause

Suppose a salesperson has a contract that says the employee can never compete with her former employer in any location in the United States. In that case, it will probably be considered legally invalid.

On the other hand, if the non-compete agreement says that the worker cannot compete with her former employer in the same neighborhood for six months after the job ends, that would more likely be valid. The bottom line: the less the contract restricts you, the more likely it is to be legal.

If you are unsure whether your non-compete agreement is valid, you should check with an employment attorney.

Breach of The Covenant Not to Compete

If you had previously signed a non-compete agreement and no longer wish to comply with its terms, you should contact an attorney specializing in employment law to find out if the contract is valid in your state.

Consult with an employment attorney before you sign or agree to anything: You may be able to be released of the covenant not to compete as part of a mutual release and closing terms of a severance agreement.

If you violate a valid agreement, your former employer can probably sue you and recover the lost money because you breached the contract not to compete. It might also be able to stop you from operating your new business or going to work for a competitor. If your ex-employer has sued you, you should contact a lawyer immediately.

2021 update on non-compete agreements

In an effort to promote a more robust marketplace for workers, businesses, and consumers, the Federal Trade Commission, under Executive Order, was requested to set stricter limits on the scope and use of non-compete agreements.

The full text of the July 9, 2021, Executive Order: Order Promoting Competition in the American Economy

Consult With an Employment Lawyer

Should you have specific questions or require additional information about your legal rights and obligations, we strongly advise you to consult with a verified online Employment Lawyer about your specific issues as soon as possible.