A non-compete agreement or contract is a standard business practice in many industries. A judge must consider each contract individually based on several factors. Below we compiled the essential information you need to know before signing a non-compete agreement. Use this guide to protect yourself.
What is a Non-Compete Agreement?
Let’s start with the basics of a non-compete. The purpose of this contract is to limit an employee from competing with the company during and sometimes after the employment period.
Non-compete contracts make sense for employers. These agreements limit a former employee from using inside knowledge about their former employer’s business to draw business, clients, or even employees away.
A Non-Compete Agreement Must be Reasonable
Courts have ruled that non-compete agreements must be reasonable. The non-compete agreement cannot put an undue burden on the employee’s right to future work.
Judges consider each instance of a non-compete agreement violation on a case by case basis. But the following are the factors used to establish whether a contract is legal in each case:
- Area - For a designated area to be enforceable, it must connect to the area where the company does direct business. Different industries will have different area restrictions.
- Time - The shorter the timeframe, the more reasonable courts will view the request. A month is more reasonable than a year and two years are more reasonable than forever.
- Competition - The shorter the list of stipulated competitors, the more enforceable it will be. And prohibition to starting a new business will be held up if it occupies the same niche as the original business.
Key Factors to Consider During Negotiations
It is in your best interest as an employee to avoid a non-compete completely. If that is impossible, the agreement is more favorable for you the more limited it is. Focus on limiting the duration and the geographic scope. Your requests will be much more likely to hold up if they are specific to your employer’s location and industry.
If there are limits to your ability to work after you leave this employer, work to build in a severance clause. When an employer decides to ask you to sign a non-compete agreement after you began working for a company, you have more leverage. Try for compensation in the form of a raise, promotion, or extra benefit to offset the contract limitations.
The legal team at Pitt, McGehee, Palmer, & Rivers has helped defend employees’ rights in discrimination, civil rights, contract negotiations, and many other cases. Call the attorneys at Pitt, McGehee, Palmer, & Rivers today at (248) 939-5081 to explore how we can defend your rights.