Non-Compete Agreement

A non-compete agreement is a legal agreement or clause in a contract specifying that an employee must not enter into competition with an employer after the employment period is over. These agreements also prohibit the employee from revealing proprietary information or secrets to any other parties during or after employment.

Many contracts specify a certain length of time when the employee is barred from working for a competitor after they end employment. Employers may require employees to sign non-compete agreements to keep their place in the market. Those required to sign these agreements may include employees, contractors, and consultants. A non-compete agreement legally binds a current or former employee from competing with an employer for a specific time after employment ceases.

Under such an agreement, the employee must not reveal any trade secrets learned during employment.

These contracts outline how long the employee must refrain from working with a competitor, in a geographic location, or in a specific market. Some states, like California, refuse to enforce non-compete agreements. Non-compete agreements can prevent workers from getting a job in their field if they leave a position.

The validity and enforcement of a non-compete vary by jurisdiction and may require the former employer to keep paying the ex-employee a base salary during the non-compete period.

On January 5, 2023, the Federal Trade Commission (FTC) proposed a ban on noncompete clauses, saying that eliminating curbs that affect one in five American workers will increase wages by nearly $300 billion a year. The rule would apply to employees and independent contractors, paid and unpaid. It would require employers to rescind existing noncompetes and actively inform workers that they are no longer in effect. Non-compete agreements are signed when the relationship between employer and employee begins. They give the employer control over specific actions of the employee—even after that relationship ends.

These agreements have specific clauses stating that the employee will not work for a competitor after their employment is over, regardless of whether they are terminated or resign. Sometimes, employees are prevented from working for a competitor even if the new job wouldn't involve disclosing trade secrets. Some contract terms may include the length of time the employee is bound to the non-compete agreement, the geographic location the employee may work in post-employment, or the market they may work in. These agreements may also be called a "covenant not to compete" or a "restrictive covenant."

Non-competes ensures the employee will not use information learned during employment to start a business and compete with the employer once work is over. It also ensures the employer keeps its place in the market.

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