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Non Competition Agreements

by Helen Glenn Court

Noncompetition agreements--or noncompete covenants, as they are also known--are simply a company's way of trying to protect itself. On the one hand are employees or consultants leaking confidential corporate information. On the other are employees or consultants leaving the company and working for a competitor. Because noncompete covenants vary from state to state, however, very broad clauses are not defensible in court.

Noncompetition from State to State

There are a number of potentially tricky aspects to noncompete agreements, tricky for the company, that is. On the former employee's and contractor's side is the right to earn a living. To be enforceable in a court of law, a noncompetition covenant must protect a legitimate business interest. The time and geographic limitations must be reasonable. The employer must give a departing employee, as opposed to independent contractor, something in exchange for the value of the noncompete clause. Stock options, severance pay, or a bonus are some of the possibilities.

To reiterate, however, state laws vary, sometimes dramatically. A noncompete agreement that's valid for Massachusetts probably won't be for California. The scope of the agreement signed is important, as is the entity behind it--for example, in reverse order, a franchise versus a parent company or an agreement specifying a geographic area. A state by state guide published by the Bureau of National Affairs and prepared by the American Bar Association is one authoritative resource worth checking into. You might also want to check with a local attorney.

The more familiar you are with the conceptual details of a noncompete agreement, the better off you'll be. The meat of the matter is generally identified within the document as the restrictive covenant, under which the signer agrees not to compete for a specified time, not to hire any company employees, and not to solicit work from company customers. Confidential information is generally defined in detail, as are remedies in the event of any breach of the agreement.

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