Question 1 – What is a non-compete agreement?
In short, a non-compete agreement is a contract between an employer and his or her employee where the employee promises to refrain from competing with that employer’s business. Provisions in a non-compete agreement generally include 3 main areas: (i) time, (ii) geographic location, and (iii) purpose.
Question 2 – Are non-compete agreements enforceable?
This is a common question. Often, individuals who sign outrageous non-compete agreements believe that the whole agreement is unenforceable. Sometimes this is true, but often it is not! Most courts will simply invalidate the parts in the non-compete agreement that are illegal and enforce the other provisions of the contract.
Question 3 – What is important in determining if the non-compete agreement will be enforceable?
A court will generally look at 3 main areas of the non-compete agreement (see Question 1), AND take into account the following 3 factors:
- there is consideration
the employer has a legitimate business interest to refrain the employee from competing with it
- this is 1 of the 3 main elements required for creation of a contract (the other being (i) an offer and (ii) acceptance)
- this means that the employee must receive something for giving up the right to compete with the employer
the restriction on the employee’s right to compete is not overbroad
- this is generally fairly easy for most employers to show
- an employer usually just has to show that it would be harmed if the employee competed with it, such as using the employer’s customer lists, information, skills, etc.
- this is likely the main factor the court must evaluate in its balancing test
- the employer must not go too far in this element (e.g. try to restrict the employee from engaging in any kind of work)
What does all this mean? Well, it means that each non-compete agreement is often very fact specific, depending on the time, location, and industry involved, the relationship of the employer and employee, etc. It is a balancing test. That’s why it’s often a good idea to find a lawyer with experience in dealing with non-compete agreements.
Next, we’ll go over non-compete agreement questions 4 through 6.