Non-Compete Agreements: An Overview

Non-Compete Agreements: An Overview

Non-compete agreements can help a business owner to protect his or her business from unfair competition if a former employee decides to start a business in the same field. These agreements are usually put into place at the beginning of the employer-employee relationship. While these agreements are legal in almost every state, they are generally illegal in California. Even so, there are some exceptions in which non-compete agreements can be used in California legally.

  • Keep Balance in Mind: The trick to making an agreement enforceable is to keep in mind that the employer cannot bar the former employee from starting a business, but can take certain measures to ensure use of sensitive information or trade secrets the employee might have gained as a part of the company are barred. Remember, while you may need to protect something a former employee can use to their advantage in competition with you, you must also remember the employee has a right to pursue a career or business in their field of choice. If you can balance these two interests in your agreement, the court will most likely enforce it if need be. Which brings us to the next point…
  • Are They Enforceable? It depends. If the agreement is reasonable and holds required aspects of such an agreement then it should be enforceable. However, if the agreement is unreasonable, does not bear in mind the right of the employee to open a business, or does not hold the required provisions, it is probably not enforceable.
  • Consideration: One such requirement is consideration. Consideration is where the employee receives something in return for agreeing not to compete unfairly. The soon-to-be-employee usually receives offer of employment as consideration.
  • Specificity: The non-compete agreement should outline specific interests the employer wishes to protect, and these interests should actually be sensitive or important assets to the company other competitors would not likely possess. These could be assets such as trade secrets, lists of important customers, or other confidential information.
  • Provisions: There should be provisions that outline duration of the agreement and the geographic area the agreement is effective in. These should be reasonable provisions. It would depend on the specific case, but in general, an agreement should only prevent an employee from opening up a business in an area where the employer does business. Keep in mind, a court will only enforce what it deems reasonable and may even alter provisions slightly and enforce these altered provisions.
  • In California: Though the previous points do not necessarily hold true in California, they do outline what a reasonable non-compete agreement looks like. Though they are generally illegal in this state, there are some exceptions, and any non-compete agreement crafted for one of the areas in which it is legal should still be kept reasonable. A non-compete agreement is legal in California if it protects trade secrets, certain changes in business ownership, and changes in business partners.

To learn more about non-compete agreements in California or just in general, contact us today! We would love to help.

Photo Credit: thetaxhaven

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