A non-compete agreement is a contract between an employee and an employer in which the employee agrees not to enter into competition with the employer during or after employment. These legal contracts prevent employees from entering into markets or professions considered to be in direct competition with the employer. A non-compete agreement is a contract that prohibits an employee from working for or becoming a competitor for a certain period of time. Non-compete agreements are enforced when a relationship between an employer and employee ends and the employer wishes to prevent the employee from competing against them in their next position, whether working for a competitor in the same market or starting up another business in the same field (and recruiting the company’s workers to leave with them). Consultants and independent contractors who terminate their relationships with companies often are subject to non-compete clauses to avoid competition after the separation. Employers also may seek non-compete agreements to protect themselves against former employees revealing secrets or sensitive information about operations, clients, customers, formulas, pricing, strategy, salary, methods and practices, ideas, future products, or public relations and marketing plans.
How a Non-compete Agreement Works
Non-compete agreements overall should be both fair and equitable for all parties. They require certain information in order to be considered enforceable:
• An effective date on which the agreement will begin
• A reason for enacting the agreement
• Specific dates during which the employee will be barred from working in a competitive sense and the location covered by the agreement
• Details as to how the noncompeting party will be compensated for agreeing to the terms
A non-compete agreement is typically in effect for a certain period of time after employment ends. Non-compete agreements usually are considered legally binding as long as they have reasonable limitations, such as clear, realistic regions where employees may or may not work, or an exact amount of time that must pass before an employee may commence work in the field again. However, the validity of non-compete agreements varies by state. An example of a non-compete agreement might involve a company that is one of only two or three such companies in a market that offers a specific product or service. The company may ask salespeople to sign a non-compete agreement because they don’t want those salespeople going to a direct competitor and trying to take their client list with them.
Another example might include a software company that doesn’t want its developers going to a competitor where they can share detailed knowledge about products being developed.
Utah Non-Compete Lawyer
• Protects a company’s trade secrets: Non-compete agreements can prevent employees from taking sensitive information to a competitor.
• May reduce turnover: Companies with non-compete agreements may be a good fit with workers who have a lesser desire to change jobs.
• May incentivize an employer to provide costly training: The chance is reduced of an employee taking the skills learned from costly training and taking them to another company.
Many Industries Use Non-Compete Agreements
Non-compete agreements are common in the media. A television station may have legitimate concerns that a popular meteorologist may siphon viewers away if they began working for a rival station in the same area. In most jurisdictions, this would be considered a reasonable cause to sign a non-compete agreement.
Legality of Non-compete Agreements
Non-compete agreements are not legal in every state. Not only are non-competes unenforceable in the state, but it’s illegal for an employer to even ask employees to sign one. An employer that asks employees to sign non-compete agreements that can’t be enforced may really be trying to trick those employees into thinking that they can’t go work for a competitor. This gives the employer an edge over other employers that are obeying the law. Most states allow non-compete agreements. Even in these states, however, a non-compete agreement is only enforceable if it is reasonable. If an agreement is so restrictive that an employee can’t make a living, a court might not enforce it. Generally, courts look at several factors when deciding whether to enforce a non-compete:
A contract that prohibits an employee from going to work for a short list of competing companies is more likely to be enforced than one that bars the employee from seeking work at any manufacturing plant or any accounting firm, for example.
• What geographical area does the contract cover? A contract is more likely to be enforced if it is limited to competitors in the immediate area, rather than applying statewide or even nationwide.
• How long does the contract last? A contract that has a relatively short time frame (for example, a year or two) stands a better chance of holding up in court than a contract that lasts for ten years or forever.
• What does the employee know? Courts understand that an employee with intimate knowledge of a company’s customer lists, pricing structures, manufacturing processes, intellectual property, or other trade secrets could do real harm by going to work for a competitor. On the other hand, lower level employees who don’t have access to this type of information can likely move among competing businesses without doing damage. A company that asks everyone to sign a non-compete, from the CEO to the mail room clerk, is more likely to lose in court than a company that requires non-compete agreements from only a few select employees.
Should You Sign a Non-Compete?
Unless you work in a state that prohibits non-compete agreements, your employer can require you to sign one as a condition of employment. In other words, if you want the job, you will have to sign the non-compete agreement. However, that doesn’t mean you should sign whatever is put in front of you. If you’re asked to sign a non-compete that seems unreasonable, based on the factors discussed above, you can try to negotiate something less restrictive. And, if you have real concerns about your ability to earn a living after leaving your employer, you might want to show the non-compete agreement to a lawyer and find out whether it will be enforced in your state. A lawyer can also help you try to negotiate a less burdensome agreement. In the modern corporate environment, many companies utilize non-compete agreements, which prevent employees from entering into competition with their former employer after their employment is terminated. While these agreements are fairly commonplace, many non-competes are not valid or enforceable, due to overly strict burdens inflicted upon the former employee. In instances where non-compete agreements are found to be valid and enforceable, you as a former employee could be subject to a number of legal actions, ranging from a simple injunction to severe monetary penalties.
Legal Ramifications of Violating a Non-Compete Agreement
Generally, if you violate a valid and enforceable non-compete agreement, it is likely that your employer will file a lawsuit against you. This lawsuit could seek compensation for money damages and actual losses suffered by your employer, could simply seek to enforce the non-compete agreement by filing an injunction against you (a court order directing you to honor the non-compete agreement), or could seek both money damages and an injunction simultaneously. In very rare cases, the court may prevent you from working for a competitor for the duration specified in the non-compete.
In order to have violated a non-compete, the agreement you signed must be found to be both legally valid and enforceable. Non-compete agreements can be invalidated for a variety of reasons, usually because they unreasonably encumber the employee. Common reasons courts find non-compete agreements include:
• Lack of Consideration: For an non-compete agreement to be valid, your employer must have given you something of value in exchange for your agreement not to compete. If consideration is missing, your agreement may be invalidated by the courts.
• Too Long: A non-compete agreement must be reasonable and must not prevent you from seeking gainful employment for an extended period. Agreements that are two to three years in length are often reasonable, but anything longer than that may be invalidated by the court.
• Too Geographically Broad: An agreement must not be too geographically broad, meaning if your employer operates in a small geographical location, he may not bar you from seeking employment everywhere in Utah. The agreement must be geographically limited in scope to prevent you from competing within the geographic location of your employer.
Non-competes can be difficult to navigate and it can be difficult to tell whether an agreement is actually enforceable or not. Because the damages for violating a non-compete agreement could potentially be very severe, it is highly advised that you seek professional legal counsel if you suspect you may be in violation of one. In some industries, it’s common for employers to request that their employees sign a non-compete contract. Essentially, a non-compete contract is a legal agreement that prevents an employee from working for his or her employer’s competitors after leaving the business. While it’s true that an employer cannot force you to sign one of these agreements, he or she may be able to fire you for not signing or may decide not to hire you if you are a new employee. In most cases, courts will not uphold non-compete agreements because many are not legally enforceable. In a dispute involving a non-compete contract, the court will usually try to determine if the terms of the contract are reasonable. If your employer presents you with a non-compete agreement and you decide to sign the contract, you are promising not to compete against your employer once your employment ends. In addition to preventing you from signing an employment contract with a competitor of your former employer, non-compete clauses can prevent you from:
• Working as an independent contractor with a competitor.
• Becoming the owner or part-owner of a competitor.
• Investing in a competitor.
For a non-compete agreement to be legally enforceable, it must meet several qualifications:
• The agreement must protect a legitimate business interest.
• The scope and length of the agreement should be reasonable.
• The agreement must be in line with the public interest.
Defeating a Non-Compete Contract
In some cases, it may be possible for you to defeat a non-compete contract. For instance, if you are able to prove that accepting your new job doesn’t actually violate the terms of the agreement, you should be able to accept your new position and your former employer won’t be able to stop you. Make sure to carefully read the terms of your non-compete contract so that you understand its limits. The terms of the agreement may be more flexible than you think. Another way to defeat a non-compete contract is to show that your employer has behaved illegally or unethically towards their clients. In general, an employer will not want these matters raised in a court case, so they may void your non-compete agreement if you have proof of these behaviors. Showing that the agreement is not related to a legitimate business interest is the most effective way of getting out of a non-compete contract. The goal of any non-compete agreement is to protect trade secrets. If you can show that your former role did not require you to access trade secrets, you should be able to accept employment with any company that you wish.
You could also attempt to prove that the terms of the contract are too broad. For example, if the non-compete clause lasts an unreasonable amount of time or restricts you from working in an overly large geographic area; the contract might not be enforceable. If your employer only operates in a single state, for instance, it would be unreasonable to restrict you from working for a competitor that does not operate within that state. It would also be unreasonable for a non-compete agreement to prohibit you from working for a competitor years after the trade secrets your employer seeks to protect are no longer valid. Proving that there was a breach of your employment contract is yet another way that you can defeat a non-compete agreement. If your employer did not fulfill the employment contract terms, then they likely can’t force you to stick to a non-compete agreement. For example, if your employment contract required that you receive a lump sum payment upon termination and your employer refused to pay this sum, you should be able to void the non-compete clause. Voiding a non-compete contract may also be possible if your employer promised you something in exchange for signing the agreement and did not intend to fulfill this promise. An example of this would be an employer stating he or she would only enforce the contract if you tried to work for a single competitor and then later preventing you from working for another competitor.
Business Non-Compete Lawyers
When you need legal help from a business attorney on an issue of non-compete agreements, please call Ascent Law LLC for your free consultation (801) 676-5506. We want to help you.
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States
Telephone: (801) 676-5506