What is a Non-Compete Agreement?

A Non-Compete Agreement is an agreement signed between an employer and its employees. This agreement restricts the employees from taking up jobs or starting businesses that involve work of similar nature (generally in the same field as the employer). This agreement is also called the 'covenant not to compete' or a 'restrictive covenant'.

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What does a Non-Compete Agreement Do?

This clause applies only when an employee resigns from a company or the authority terminates him or her from the job. This agreement mentions a specific time period (usually three years) within which the employee is not permitted to get involved in a similar kind of work for another company. It may also mention a specified geographical area where the employee cannot work in that specific time period. The employers ask their employees to sign this contract in order to ensure the employees do not use the knowledge and information gained from working in the company to start a business or work in a competitive company. These information and knowledge include trade secrets, business practices, marketing plans, upcoming products, and client list among others. The employee may use all this information for gaining a competitive advantage over the former employer. The non-compete agreement intends to limit that scope. This agreement is enforceable even when there are no possibilities of a trade secret disclosure. If an employee signs the non-compete agreement while entering a job, he or she needs to adhere to its clauses after leaving the company. A non-compete agreement is different from the non-disclosure agreement. Non-disclosure agreement does not restrict someone from taking up any jobs, it only ensures the employee does not use any confidential or sensitive information in another company. An NDA prevents the employee from revealing information which is considered confidential and sensitive. The non-compete agreement simply prevents the employees from taking up a job in a rival company within a specific time period. A non-compete agreement limits the scope of finding a new job for the employees. It may prove to be a hindrance for them in search of a job with their skill set and expertise. In the U.S. the enforcement and recognition of the non-compete agreement fall under the state jurisdiction. The rule varies widely from one state to another. Recently, the rules regarding the non-compete agreement have been debated and amended in many states. The legislature of the state of California does not recognize the non-compete agreements except for a few specific cases. Utah has passed a resolution that states a non-compete agreement can be valid only for a year. Hawaii made it illegal for the high-tech companies to insist their employees to sign a non-compete agreement. Most of the states in the U.S mandate that the duration mentioned in the agreement should not be too long, also the geographical scope needs to be reasonable. In general, the state legislatures try to ensure that this agreement does not prevent an employee from getting a new job.

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