More and more businesses are created every day, and since the United States is built upon the concept of competition, business owners have to be careful about who they hire, and what those employees do after leaving the business. Because of this concern, employers sometimes include non-compete agreements in their employment contracts to guard against the stealing of ideas and customers.
Non-compete agreements cannot be created without a legitimate reason for existence, and the agreement must also not inhibit an employee’s ability to gain employment upon termination. In most cases, the non-compete agreement goes into effect only after termination, which is a major gray area when it comes to legalities.
First, the non-compete agreement must protect the employer from a valid concern. For example, if you are working as a marketing representative for an electric utility company, they might ask you to sign a non-compete agreement that prevents you from sharing trade secrets with other utility companies in the future. This might include sales pitches, contract forms and other sales efforts. The non-compete agreement might also require that the employee not work for another utility company for three-to-six months after termination.
Second, the non-compete agreement must provide proper consideration. In most cases, the employer is required to offer added compensation for signing the agreement, such as more money per hour, a discount on benefits or a promotion. The type of compensation increases after employment; if you are asked to sign a non-compete agreement after employment is offered, then the compensation must be greater than if signed prior to employment.
And third, the non-compete agreement must be reasonable in “scope, geography and time.” For example, I was once asked to sign a non-compete agreement that stated I was not to be employed in the industry for twelve months following termination. This is not reasonable. Another example would be if the non-compete clause stated that you couldn’t work in that industry in the state of Oklahoma. This prevents an employee from seeking employment unless they move out of state, which is also unreasonable.
In order for a non-compete agreement to be legal, the employer must demonstrate “legitimate business interests.” This means that the employer must share certain information with an employee, and that the employee is not allowed to share that information with the competition. For this to be legal, the employer must be able to prove that the information it shares with the employee provides a legitimate competitive advantage.
Generally speaking, non-competition agreements are included in the employment contract. It will be a clause that many employees will overlook, therefore signing something they do not understand. If the agreement prevents an employee from seeking employment upon termination, he or she should evaluate the scope of the agreement, and determine whether or not it is wise to sign it.
If an employee is terminated and feels that the non-compete agreement is unfair, he or she can take the matter to court. In reality, courts usually favor the employee over the employer because non-compete agreements are typically vague and often overbroad. Since the laws concerning non-compete agreements are vague themselves, courts take these matters one and a time and evaluate each case individually.
If you are concerned about signing a non-compete agreement, it is best to let an employee rights attorney look over the document before you agree. Ask about the validity of the agreement and whether or not you are being compensated justly for the promise. Sometimes, an employer will be willing to negotiate this matter, while others keep it in their contract as a universal clause. Whatever the case, employees should protect their rights when it comes to non-compete agreements and take care in signing agreements about which they have questions or concerns.
Likewise, an employer should consult with an attorney when writing a non-compete agreement to determine the reasonable scope of the agreement. An attorney can save you time and money with employees who contest the agreement. You want to protect your rights and those of your business, but it is also important to treat all employees fairly.