Last Updated on December 9, 2022 by Anda Malescu
The article discusses about how does a non-compete agreement work in the United States. Before laying out the mechanism of non-compete agreements, we will first define a non-compete agreement and explain its purpose.
A non-compete agreement is a contract between an employee and an employer in which the employee agrees not to enter into competition with the employer for a defined period of time – during or during and after employment. A non-compete agreement prevents employees from entering into markets on their own or into professions considered to be in direct competition with the employer. However, non-compete agreements are highly controversial and United States courts in general tend to not enforce a non-compete agreement that prevents a former employee from earning a living and being able to provide for themselves and their family.
Non-compete agreements enter into force when the contractual relationship between the employer and the employee ends and the employer seeks to prevent the employee from competing against them in the future. This can involve working for another employer in direct competition with the former employer or starting up a business in the same field. Non-compete agreements are used by employers especially because they protect their know-how and company secrets or other sensitive information in regard to operations, clients, customers, formulas, pricing, strategies, salaries, ideas, projects, products or any other plan of the company.
A non-compete agreement is usually in effect for a determined period of time and the time starts to lapse from the moment the employment ended. It is important to determine the date well in advance and establish a realistic timeline. Non-compete agreements must be generally fair and equitable for all parties. They are also known as ‘noncompete’, ‘noncompete clause’, ‘noncompete covenant’, or ‘covenant not to compete’.
To better understand the next point of discussion, we will first lay out an example of a situation involving a non-compete agreement. A company that is one of the few competitors in the market producing a specific product or rendering specific services can ask their salespeople to sign a non-compete agreement in order to prevent them to go to the direct competitor and maybe share client lists with them or starting a parallel company and taking the clients.
Non-compete agreements represent a sensitive topic in the legal field lately, involving some controversies in the United States. There are challenges sometimes in determining whether the non-compete agreements are binding or not and the answer is that it varies from state to state and it greatly depends on the circumstances of each case.
Non-compete agreements are usually considered legally binding as long as they have reasonable limitations. They have to be clear, include realistic regions where employees can or cannot work, a defined amount of time, and others. However, some states such as California, North Carolina and Oklahoma disregard such an agreement and do not recognize it at all. But in Florida for example, a non-compete agreement under Florida law may be enforced by the employer so long as they are reasonable with regard to the time and geographical area and protect a legitimate business interest of the employer. For instance, restrictions of up to two years and areas where the employer actually does business are considered reasonable by a court.
Contact us, your business attorney in Florida, to help you better understand how does a non-compete agreement work.
Malescu Law P.A. – Business Lawyers
