When does a non-compete agreement take effect in the United States?
A non-compete agreement is a contract pursuant to which one party agrees not to engage in business activities that will compete with the other party. The agreement can be either incorporated as a clause in a larger contract or it can be a stand-alone agreement. The non-compete agreement is also known as a ‘covenant not to compete’. This type of agreement is different from a confidentiality agreement, also known as ‘non-disclosure agreement’.
The article discusses the definition of non-compete agreement, how they work, what terms to include in a non-compete agreement and about when does a non-compete agreement take effect.
The contracts that usually provide for non-compete agreements are employment contracts, sale of a business contracts and business-to-business transactions.
Non-compete agreements are most often used in employment, where an employee agrees not to compete with the former employer for an agreed period of time after the termination of the contractual relationship. Non-compete clauses are also included in contracts for the sale of businesses, where the seller agrees not to compete with the buyer of the business. Further, non-compete agreements can also be incorporated in contracts with business partners, vendors, independent contractors and franchises. Their purpose here is to protect the knowledge the employee acquired during their contract and to prohibit them to compete with another business that would employ their services.
For a non-compete agreement to be valid and enforceable, it must describe in detail the restrictions on what type of competition is permitted – also known as the scope of the non-compete agreement, the duration of the non-compete agreement and the geographical range in which the non-compete agreement takes place.
While most US jurisdictions allow non-compete agreements in an employment scenario or in a business-to-business contract, some jurisdictions such as Oklahoma and California do not recognize non-compete agreements, and as a result, in these states, they are not enforceable.
In the states that do recognize and enforce them, non-compete agreements must be supported by consideration at the time of signature, they must protect a legitimate business interest and they must be reasonable.
As stated before, non-compete agreements take effect when the contractual relationship has ended.
Non-compete agreements can be enforced through litigation. As a restricted employee, you may ask the court for a declaratory action. The court would then revise the contract and the terms of the contract and decide whether or not the non-compete agreement is enforceable.
If you are an employer seeking to enforce a non-compete agreement, you can file a lawsuit alleging that the other party, the employee, has violated the agreement. Also, the party asking for the enforcement of the non-compete agreement can ask for an injunction, asking the court to prohibit the other party from engaging in an activity that is considered to be competition, as defined in the non-compete agreement.
For more information about non-compete agreement, their enforceability and the time they take effect, contact us or book a consultation with your business attorney in Florida. We can assist you with your legal needs.
Malescu Law P.A. – Business Lawyers