You’re thinking about accepting an offer from another company that would mean more money and seniority or perhaps the chance to get in on the ground floor of an exciting new enterprise. However, you’re concerned about that non-competition agreement you signed back when you were hired by your current employer.
Most people don’t give much thought to signing these agreements because they generally aren’t relevant until or unless they leave the company. However, they can prevent you from moving forward in your career if you’re staying in the same industry.
Companies may require new employees to sign non-competition agreements for a number of reasons. They may need to protect trade secrets or other confidential information from being disclosed to competitors. They may also want to protect the company’s goodwill with customers from being taken by an employee to a competitor. Goodwill is viewed as a capital asset of a company.
Fortunately for employees who are required to sign non-competition agreements, courts don’t generally look favorably on them if they harm someone’s ability to earn a living after leaving an employer. If the employee challenges the agreement in court, it will be closely scrutinized.
For a non-competition agreement to be valid, its limitations on future employment must be reasonable in time, geography and scope. It can’t be overly broad. The employer must also have a legitimate business reason for putting the agreement in place and enforcing it.
Further, the employee must receive something in exchange for signing an agreement. For new hires, that is usually the job itself. However, if a current employee is required to sign an agreement, they need to be given something more, such as a promotion, in return.
Sometimes a court will rule that an entire agreement is invalid. However, sometimes it will determine that only part of a non-competition agreement is unfair. If that’s the case, it may require that it be amended. For example, its scope may be narrowed to allow an employee to take a job in a similar company that isn’t in direct competition with their former employer.
If you have concerns about a non-competition (also known as non-compete) agreement that you’re being asked to sign when you take a new job — or you believe that the non-compete agreement you signed years ago is harming your career and ability to earn a living — it may be wise to seek legal guidance.