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What is a non-compete agreement?

On Behalf of | Jun 9, 2020 | Contracts |

It is important to know how non-compete agreements work whether you are an employer or an employee. Many employers require employees to sign a non-competition agreement upon hiring. 
The idea behind a non-competition agreement is that it protects the employer in the event that the employee leaves the business. According to Findlaw, in order for a non-compete agreement to be valid, it must be reasonable in duration and scope. 
What is a non-compete agreement? 
A non-compete agreement protects the intellectual property of an employer. For instance, a non-compete agreement may stipulate that an employee may not share trade secrets if they go on to work for a competitor or try to start their own business. Some non-compete agreements may also prohibit employees from setting up a competing business in the same geographic locale as the original employer. 
However, in order for a non-compete agreement to be valid, it needs to be “reasonable” in the eyes of the court. 
What is “valid in duration and scope”? 
Essentially, it is highly unlikely that an employer can swear an employee to secrecy for all eternity. For all information, there is an expiration date on its value to the original employer. Additionally, a non-compete agreement may not prohibit the employee from pursuing a livelihood should he or she leave the original employer. Also, non-compete agreements generally cannot prohibit an ex-employee from starting a competing business in an area where the employer does not have a presence. 
What is and is not “valid in duration in scope” is a separate matter for each non-compete agreement. So what may be valid in duration and scope for one non-compete agreement the courts may consider invalid in another.