ABC’s of Hiring #16: Non-Compete Agreements in the USA

Employers have a right to protect their relationships with their customers and their confidential information, and former employees have a right to earn a living. Employers may require non-compete agreements for a variety of reasons, including protection of trade secrets or goodwill. However, courts generally disapprove of non-compete agreements as limitations on a former employee’s right to earn a living.

Legal Requirements

  • Quid pro quo – to be enforceable, the agreement must be signed in return for some form of remuneration, something of value in exchange for the promise to refrain from working for the competition. For example, an employment offer a promotion, a bonus or a merit increase, but not the mere promise of continued employment.
  • Employer legitimate business interest – the agreement can be used to protect confidential information. The employer must show that it took reasonable measures to keep the information secret and that the information gives the employer a competitive advantage.
  • Reasonableness is key – to enforce a non-compete agreement, a court will balance the need to protect the employer’s business interests with the burden placed on the employee. The agreement must be reasonable in duration and scope including geography and the nature of the product and services. The broader the terms, the more problems for both parties. It is best to define the products, customers or specific technology that is part of the job and the specific geographical scope involved.

Recommendations

  • Check your state’s policies – every state is different, so it is important to know your rights and the rights of your employer before you sign.
  • Consult an employee rights attorney – if you are unsure about signing, a lawyer can advise you and help craft a balanced agreement. By signing, you do not waive your rights under the law. The law applies to you for your protection as well as your employer.
  • Avoid a legal battle – your employer most likely has deeper pockets than you do. Negotiate up front, retain all originals of all signed paperwork and note the details of any meeting on the subject. Be prepared. Know your rights. Your livelihood is worth fighting for; however, it is still best not to litigate.

Summary

Once you have negotiated a fair and reasonable agreement that reflects the specifics of your job, be prepared to honor it and sign it. Otherwise, your new employer will have reason to question your integrity and trustworthiness, which is not a good way to start a job or continue your employment.

 

Bob Harrington Associates has been in the executive search business for 20 years and can help you find the best people for your business.

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