Last Updated on December 8, 2022 by Anda Malescu
In the United States, a non-compete agreement is a contract between an employee and employer that provides for the prohibition of the employee to compete with the employer after the employment relationship ends.
The non-compete agreement must describe and enumerate in an exhaustive list the type of competition that is prohibited. Usually, a non-compete agreement bars employees from working with a competitor or from starting a business on their own.
Such a contract is valid and legally binding only if there is something bargained for in exchange for the prohibition and each party gets some benefit. The employer benefits from a non-compete agreement because the employee gives up the opportunity to work or start up a new business that competes with the former employer for a certain time. As for the employee’s consideration, United States courts have found that being hired for the job is sufficient consideration.
Do you have to sign a non-compete agreement before starting employment with a U.S. employer?
At the beginning of a new employment contract, employees at U.S. companies are often asked to sign various documents that could take effect either at that moment or at the termination of their contractual relationship. The latter case involves the signature of non-compete agreements. The article explains non-compete agreements, their mechanism and seeks to answer the question ‘Do you have to sign a non-compete agreement?’.
An important aspect to mention is that non-compete agreements are not legal in every U.S. state. Some states refuse to recognize and enforce non-compete agreements.
For instance, Oklahoma refuses to enforce non-compete agreements. Also, in California not only are non-compete agreements not recognizable and unenforceable but asking an employee to sign a non-compete agreement is illegal. Besides these two states, most of the other U.S. states allow non-compete agreements, but such agreements must be reasonable. The reasonableness of a non-compete agreement has different standards among the states.
However, the main aspects that courts in the United States look at are the following:
- Definition of the competition. The activities that are considered competition must be defined and enumerated in an exhaustive list. The terms cannot be vague or incomplete. For instance, a contract that prohibits an employee from going to work in a specific X, Y, Z places is more likely to be enforced than a contract that bars the employee to work at ‘any accounting firm’.
- Geographical area. For the non-compete agreement to be enforceable, it must be limited to competitors in an immediate area. Also, a non-compete agreement will not be enforced if the employer bars the employee for working in places where the employer does not even enter into the market. For example, employer that has its principal place of business and incorporation in state A cannot bar the employee from working in state B.
- Duration. For a non-compete agreement to be considered enforceable, its duration has to be relatively short and reasonable in time. This will depend on the situation, but courts have often found that a one-year duration is often considered reasonable.
- Selection of the employee that has to sign. Non-compete agreements are usually designed for employees in key functions in the company. The non-compete agreements are usually given to be signed by employees with intimate knowledge of the company’s customer lists, pricing structures, intellectual property, trade secrets etc. Courts have generally found that non-compete agreements signed by employees with a higher position in the company are enforceable, whereas non-compete agreements signed by employees that do not have the knowledge before mentioned (mailroom clerk) are not enforceable.
Even if employees are not obligated per se to sign a non-compete agreement, they would most often have to do so in order to get the job they want. However, they can negotiate and be careful at the terms and conditions of such an agreement.
For more details and a legal opinion on the enforcement of a non-compete agreement, contact us or schedule an appointment with your business attorney in Florida.
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