What Is a Non-Compete Agreement? + Free Template

Cody Cromwell
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The purpose of a non-compete agreement is to restrict the economic benefit that is gained from a former employer when an employee leaves their company. Generally speaking, the non-compete agreement is a two-way benefit: the employer offers more than just an opportunity for employment; they offer a contract that restricts the employee’s ability to seek employment in the future with their competitor while still at their previous job position.

Although a non-compete agreement is often considered a measure to protect the job position, it is important to note how underhanded it can be for one to truly benefit from a non-compete agreement. The consequence of a non-compete may even cause long-term harm to the relationship between the former employer and employee.

A non-compete agreement can also create a public relationship between the parties; this, in turn, may often lead to an undercover lawsuit. Furthermore, a non-compete agreement can be deemed as unduly enforcing a contract and, therefore, be reversed. Contained within the termination terms for each employee are a number of exceptions to a non-compete agreement.

Free Non-Compete Agreement Template

Have you ever been terminated from your job or felt that you were being kept away from an opportunity that was rightfully yours? If so, you would have wished that your former boss or employer would have required that you grant them an appropriate non-compete notice to protect their interests.

A non-compete is a contractual obligation that limits you from performing certain acts after you leave your job or leave the company. This would ensure that your former employer can still take advantage of your intellectual property and customer base.

Non-competes are not always followed to the letter. Many employers are not completely aware of what a non-compete is supposed to be or how a non-compete looks like, especially since they generally focus on getting the best deal possible. Some non-competes in place are nothing but a clause stating that the employee cannot compete against the company.

If you’re looking to obtain some protection for your future, you’re not alone. Many people trigger a non-compete when they quit their company and are terminated. Unfortunately, some people lose out simply because they are not aware that a non-compete is in place.

States That Do Not Recognize Non-Compete Agreements

Non-competition agreements are governed by state law. Therefore, it is important to understand the rules and requirements for where you live.

Many states do not recognize noncompetition agreements; therefore, if you are in one of these states, you should refrain from signing a noncompete. Different states have different requirements when it comes to the requirements when it comes to the noncompetition agreement. For example, some states do not require a time period … that is, it is not required that there be a specific period of time a noncompete is in effect. Instead, some states require certain non-competition terms. For example, some states require noncompetition terms to be in the contract. Also, some states require specific provisions within a noncompetition agreement, such as prohibiting the owner from soliciting customers.

Where you live can also determine whether a noncompetition is enforceable, which means whether you are required to abide by the terms. In some states, the noncompete will be enforced. The enforcing state will determine whether the agreement is enforceable after it conducts a five factor analysis. The following factors include the following:

Generally, the noncompetition agreement must be fair and specific. The agreement must also be reasonable in its duration and geographic extent.

If you are signing a non-compete agreement, remember that it is important to take time in reviewing it with an experienced attorney.

Expectations of Enforceability by State

Getting a job offer in another state can be a cause for celebration on many levels. It is a chance to expand your professional contacts, go back to a familiar area where you know the people and the area, and hopefully, expand your career opportunities with a position on your advanced to management level that might have been out of reach in your home state. Of course, you will want to ensure that you do not breach any non-compete agreements that you may have signed while employed in your home state.

The enforceability of non-compete agreements in the states can vary considerably. Some will be extremely difficult to enforce while others, especially in recent years, have become almost unenforceable due to issues related to restrictions on non-competes by federal and state courts….

There are many considerations to be made when drafting a non-compete agreement including the length of time and geographic area the non-compete is required to be in effect and the duration of time of non-compete agreement…It is essential that you discuss these items with your attorney if you are considering signing a non-compete agreement and if you are planning to relocate to a different area.

Pros and Cons of Non-Compete Agreements

Non-compete agreements are a contractual restriction on the non-competitive actions of an employee.

Non-compete agreements are essentially ways to control exit options for employees to protect a firm’s proprietary information that the employee obtained through the course of their employment.

Non-compete agreements are controversial. They restrict employee mobility, which can limit employee benefits and decision options. Therefore, they are subject to strict scrutiny. These restrictions are typically invalidated if they are overly broad, the performance of the employee is not protected, or if the agreement makes no economic sense.

Presently, many employers are re-examining the use of non-compete agreements to determine whether they provide any benefit to the employer and are necessary to protect business and trade secrets.

Currently, non-competitive agreements are enforceable if they are limited to time and geographical scope. Courts will enforce time-based non-competitive agreements up to 10 years after termination of employment. Extent of geographical scope is determined by the employer’s business sensitivity.

However, it is not uncommon for employers to include unnecessary restrictive covenants or fail to draft them with proper consideration for the employee and their options post-employment.

It is very important for employers to include consideration in the contract, read the contract and ensure protections are clearly delineated from actual consideration.

Why You Might Need a Non-Compete Agreement

Common Company Scenarios and Resulting Non-Compete Agreements

Top 6 Mistakes With Non-Competition Agreements

Non-competes. Sounds scary, right? However, non-competes are actually pretty common. Studies show that at least two of every three employees in the United States have signed a non-compete. Now, I know what you’re believing: it would be impossible to sign a non-compete without them knowing they’re signing a non-compete. Well, you’re wrong.

In fact, so many people are signing them, that many states have made them illegal for a certain number of years in their "long-arm reach." A "long-arm" state has jurisdiction over any activity that happens in that state, and examples of long-arm reach might include Florida for most people who live in California, and California for most people who live in Arizona (which is why I'm going to be referring to Arizona as a "long-arm state" in this blog post).

So if you're looking to avoid a non-compete in a long-arm state, you'll want to follow these six tips.

Interpretation of “Competition”

A noncompete agreement is a contract that prevents an employee or former employee from going to work for a competitor. When evaluating whether to enforce a noncompete agreement, courts have limited latitude to place limits on what constitutes competition.

The question of interpretation has to be answered when there’s no specific definition of ″competition” in the agreement. In one case, the Texas Supreme Court held that ″any type of competition” was sufficient to constitute ″competition.”1 In another case, an Illinois court determined that competition even applied to selling property in the same subdivision.2

However, even with these broad interpretations, it’s still common for courts to determine if a noncompete agreement is enforceable based on the words used in the agreement. They’ll look at the exact definition of competition in the contract versus what the parties intended by their agreement.

Lack of Consideration

If you’ve ever worked in the hospitality industry, you may have witnessed an employee signing a non-compete agreement regarding their employment. What exactly does this agreement mean, and why do employers request employees sign it?

A non-compete agreement is a contractual clause that restricts an employee from soliciting clients, customers and vendors while they’re between jobs.

People who sign non-compete agreements have agreed to refrain from building and/or serving clients, customers and/or businesses owned or affiliated with their employers or employers’ clients for the duration of the non-compete period. This restriction usually lasts from one to five years and is rarely of a shorter duration.

The purpose of the non-compete agreement is to protect the organization and its' competitors from ex-employees going behind their back and exploiting the detailed knowledge, insight and relationships acquired during their employment.

Length of Enforceability

A non-compete agreement (also referred to as an non-competition or confidentiality agreement) is an agreement in which one party (the non-competee) agrees that they will not actively compete with the other party (the non-competitor) for a specified period of time after a certain event, usually ending right around the commencement of an employment term.

There are many good reasons why someone would need this protection. For example, one might need a period of time to get his or her feet on the ground after being hired; a sports figure might want to be assured that he or she can compete in a certain sport before signing a long-term contract; or a computer programmer might want to ensure that they can obtain work until the expiration of his or her employment agreement.

However, outside of very specific circumstances, there is a good chance that these agreements are very unenforceable in court. The laws of most states in the United States prohibit the enforcement of non-compete agreements in the employment context.

Definition of “Territory”

[p] “Territory” includes any state, county, city, country, town, and such other area. Limited to 5 locations.

which alone may increase your business.[/p]

Some states in the United States require that employers agree not to impede, prevent or deceive potential employees in order to keep their job. This Protects their job stability to stay within the bounds of the law

Some industry professionals (such as the competition) are very interesting.

In the case that they think they have a breach in their contract and feel that they could bring you to court and sue you.

In some cases they cannot do this, because the contract itself prevents it!

Let’s look at an example of a “non-compete agreement.”

Confirming Jurisdiction

A challenge arises when parents of a child decide to live in a different state after the parties have already filed a parental rights complaint. How can the plaintiff bring a non-compete case to the other state when the child has not lived in the state long enough for jurisdiction over the child to be established? By first determining the laws concerning the plaintiff's custody and parental rights in the

Child's state of residence. Once the jurisdiction issue is settled, the plaintiff can then file in the

Failing to Update Your Non-Compete Agreements

It’s well known that trademarks and copyrights are some of the most valuable assets any company possesses. In fact, a recent study conducted by the U.S. Patent and Trademark Office (USPTO) reveals that the United States economy is affected by the strength of its intellectual property, with creative and innovative businesses playing a crucial role in the country’s economic and social outcomes.

Because of their growing value, making sure that your company’s valuable assets are protected is crucial. And while it’s smart to have your intellectual property registered with the USPTO, making sure that your company’s trademarks are protected lies within you and your employees to ensure they’re in line with your company’s philosophy and vision.

To do so, you’ll need to be aware of what constitutes a trademark and how you replace it if it’s ever lost. When Americans think of trademarks, their minds often gravitate towards intellectual property such as brand names, logos, jingles, slogans and visual images … but there are other forms of trademarks as well.

Non-Compete Agreements vs Non-disclosure or Confidentiality Agreements

Whether you are in a relationship or business, you may encounter situations where you are required to sign a non-compete agreement. The terms in a non-compete agreement are similar to those in a confidentiality or non-disclosure agreement: you agree not to compete with your employer or a customer for a certain period of time. However, non-compete agreements are more restrictive than confidentiality agreements. It is rare to see a confidentiality agreement that prevents you from working in a field that is completely unrelated to your employer, but it happens. Non-compete agreements, on the other hand, prevent you from engaging in a whole different industry and sometimes even a completely unrelated field.

A non-compete agreement is not enforceable without a court order. The court will look at whether the agreement is too restrictive and infringes on your statutory rights, such as the right to earn an honest living. In addition, courts will not grant a non-compete agreement if it violates public policy, such as an agreement that would prevent a sandwich maker from opening up his own sandwich shop claiming that sandwiches (as a whole) cannot be patented.

NDA vs NCA Example Scenarios: What Tool Is Best?

The Bottom Line

Non-compete agreements (sometimes referred to as non-compete clauses) are part of an agreement between an employer and an employee, which prohibits the employee from opening a competing business in his former company’s geographic area.

In some states, no such agreement may legally burden a former employee if that agreement is not required or if the employee continues to receive his same salary, raises and benefits in the agreement’s absence. The agreement must benefit the public as it relates to protecting trade secrets, as well as serve the interest of the employer and employee in working toward a win-win situation.

One of the primary reasons an employer might want to place a non-compete agreement in a job offer is to prevent employees from taking trade secrets with them after leaving the company. Usually, the secret is the recipe for a particular type of product, and the employees often walk out the door with this recipe.

Did you know…

Not all states have laws about non-compete agreements?

The number of non-compete agreements in lawsuits has dwindled?

Non-compete agreements are enforceable in at least 22 states?

Most states generally have a similar approach to non-compete agreements in the following respect:

Non-compete agreements by Definition