Non-compete agreement, which is also known as noncompetition agreement or non-compete clause, is a controversial agreement in the United States which has come under attack from all sides for being an overreaching covenant. However, in the United States, the status of non-compete agreements is a matter of state jurisdiction and their enforcement and recognition varies with state law.
In general, a non-compete agreement is a contract between two persons, an individual or business entity, where one of the parties to the contract agrees not to work for competitors, with competitors or otherwise set up a parallel competing operation after the parties separate. Non-compete agreements are the most prevalent in employment situations and operate as an agreement between an employer and an employee where the employee agrees not to enter into competition of any kind, including not to work for competitors of the employer, for a certain time after the employment period is over. Usually, these agreements also prohibit the employees from revealing proprietary information or secrets to any other parties during or after employment. Aside from non-compete agreements in employment situations, non-competes are also used when purchasing a business to prevent the seller from starting a competing business or between business partners to prevent them from using proprietary information to compete after separating.
A non-compete agreement is used to protect businesses and a company’s proprietary information and secrets. A non-compete agreement may also be called a covenant not to compete or a restrictive covenant and can appear as a clause within another contract (such as an employment contract) or as a stand-alone contract.
In the United States, a non-compete agreement is common in the entertainment industry, media and information technology sector (IT) but is also found in other industries such as the financial industry, the corporate world and manufacturing.
Traditionally, covenants not to compete were designed to prevent unfair competition and were only applied to corporate executives, persons with knowledge of trade secrets, salespersons and client-based professionals such as a physician or an accountant. In recent years, however, non-compete agreements have become common in other types of employment arrangements, especially in the service industry, with their reach extending to chefs, yoga, aerobic or pilates instructors, fast food employees, editorial employees, student interns and other workers with no knowledge of trade secrets. As a result of employers using overly broad noncompete agreements, executives, legislatives and judicial branches in several states have acted to prevent such non-compete arrangements.
In the United States, not every state recognizes or enforces a non-compete agreement. In fact, states vary widely in their recognition of non-compete agreements and their enforceability is unpredictable despite the well-known general rule that a covenant not to compete is only enforceable if its terms are reasonable and necessary to protect the legitimate business interests of the employer. The state of California has long been very hostile to non-compete agreements and currently does not recognize these agreements at all. Noncompete agreements cannot be enforced in North Dakota and Oklahoma. In 2018, an Illinois federal court refused to enforce a non-compete agreement in an employment case on the grounds that the noncompete agreement is too broad. Further in August 2018, the governor of Massachusetts signed a bill into law that aims to prevent the overuse of noncompete agreements. In the state of New York, non-compete agreements are legal and enforceable but are disfavored by judges and New York Attorney General who often refuse to enforce them.
Recently non-compete agreements have come under attack and their enforceability is unpredictable. Contact us, your business attorney in Miami, Florida USA to assist you with your non-compete agreement needs or book a consultation.
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