Non-Compete Agreements

Non-Compete Agreement

Key Takeaways

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A non-compete agreement is a legal agreement or a clause in an employment document that specifies that an employee cannot compete with their employer after their employment is terminated. The agreement can also prohibit employees from revealing information to other parties during or after employment, though this may also be covered in a separate confidentiality agreement or clause.

These agreements should be narrowly tailored. There should be a specific a length of time that signees are barred from certain actions. This time limit, as well as the geographic limitation should be reasonable. Activities deemed “competition” should be clearly defined as well.

Non-compete agreements and clauses are more likely to be scrutinized by the courts than confidentiality agreements. Some states do not allow the enforcement of non-competes. For example, California, North Dakota, and the District of Columbia virtually ban them entirely, while some states (Illinois, Maine, Massachusetts, New Hampshire, Rhode Island, Washington) prohibit non-compete agreements for low-wage workers. This list can change from time to time, so it is important to consult with an attorney when drafting these provisions and regularly thereafter in order to ensure that your documents reflect the current state of the law in your respective jurisdiction(s).

President Biden’s Executive Order of 9 July 2021, the Promoting Competition in the American Economy Order, encouraged the Federal Trade Commission (FTC) to curtail the use of non-compete agreements and clauses that impact a worker’s mobility unfairly. Although there has not yet been (at the time of this writing) official federal action on these agreements, such action looms in the distance. Going forward, it would be wise for employers to pay close attention to their non-compete agreements to ensure compliance with this evolving area of law.

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