A non-compete agreement is a written understanding between two parties in which one agrees not to compete in the same field or profession as the other for a set period of time and within a defined geographic region. This area of the law is delicate, unsettled, and varies from state to state. The purpose of the agreement is to protect a company’s legitimate business interests in the form of sensitive information or trade secrets.

The “agreement” is most often:
* A free-standing agreement;
* A clause in the employment agreement; or
* A clause in the separation agreement.

The agreement delineates:
* A temporal limit (e.g., six months; two years);
* A territorial limit (e.g., within the city limits of Denver; within a 25-mile radius of the company’s address).

Reasonableness is key. Courts will not uphold agreements that demand too much in terms of time-ten years for example-or geography-within a whole state or in the entire US, unless there is a correspondingly important business reason.

Consideration is also important, so the employee, whether new, old, or recently terminated, must be given something of value for agreeing not to compete. For the new, the prospective job should do. For the old, the specter of a raise will work. And for the newly terminated, compensation as part of a separation agreement is a good idea.

California bans non-compete agreements except in the sale of a business. Other states may strike down overbroad agreements altogether or merely cut out the offending sections (i.e. “blue line” them).

Consider how the employee left. If he was fired without cause or laid off, a court will likely be on his side. If he quit or was let go for cause, then the pendulum swings back in favor of the company.

In short, the non-compete agreement must strike a balance between protecting a company’s legitimate business interests and not infringing upon an employee’s right to work.

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