Non-compete agreements are tools used by employers to restrict an employee’s employment opportunities in an effort to prevent the sharing of protected information. By limiting where, for whom and in which capacity a person can work after leaving a company, employers with a non-compete agreement in place can prevent former employees from stealing and using proprietary information to compete against the company.
However, these agreements can only be effective if they are valid and enforceable. Whether you are an employer or an employee, it can be crucial to understanding a few common reasons why a non-compete may not be enforceable.
- The agreement was not signed by both parties. Because it is a legal document, both parties must sign an agreement not to compete. Further, both parties should be free from coercion and the document must not be fraudulent.
- The agreement is unreasonable. Restrictions that are too harsh or overreaching with regard to geographic scope, duration or employment activities can invalidate an agreement. Employers should consider carefully any restrictions to ensure they are purposeful and necessary.
- The agreement does not protect a legitimate business interest. If a covenant not to compete doesn’t address any specific information or proprietary data, then there is no need to restrict workers. In other words, if an employee won’t have any access to or knowledge of trade secrets or protected material, he or she may not be bound by employment restrictions.
It is also important to note that state laws vary widely when it comes to enforcing these agreements. California, for example, does not enforce non-compete clauses. Here in New Mexico, laws specifically limit non-compete clauses for healthcare workers and doctors.
Determining whether a non-compete agreement is valid or not is something parties should ideally do before signing anything. However, it is not unusual for people to sign them first and ask questions later. In either case, discussing the validity of these and other employment agreements with an attorney can be crucial. With legal guidance, employers and employees can better understand and protect their rights.