Are Noncompete Agreements Valid?

Companies often ask their employees to enter into broad noncompete agreements or employment contracts with broad noncompete provisions.

The reason may be because they would like to keep exiting employees from working for a competitor firm. It may also be that you simply want to stipulate how soon an employee can start working for a similar company. Whatever reasons you might have for asking your employees to enter in noncompete agreements, the question remains whether nonompete agreements are valid.

Validity of noncompete agreements

Noncompete in general, are not valid. There’s a strong public policy in the most US states against such agreements. The reasoning behind this public policy is to make sure that employees have the right to pursue any lawful employment of their choice. But as is often the case with most laws, there are exceptions to this general rule.

Noncompete agreements and the courts

In most states, courts typically permit noncompete agreements when it is considered necessary to protect valid company trade secrets. If a former employee uses trade secrets or confidential information without authorization to enter into an unfair competition, the courts will enforce proper noncompete agreements.

Noncompete agreements (which an employee signed) can prevent him or her from legally using formulas, recipes and other customer notes, confidential company information and trade secrets.

However, it should be noted that simply labeling information as a trade secret doesn’t make it so. Disputes as to the true nature of the information are decided by the courts on a case-to-case basis.

Similarly, noncompete agreements prevent a departing employee from influencing other employees to go with him and breach their contract. However, if such a contract does not exist, employees can simply join a coworker to work for a rival company.

Note that while these are general rules, each noncompete agreement should be separately considered in view of the most recent employment law developments. Entrepreneur.com says, "A lawyer-drawn agreement tailored to the law and the specifics of the employer’s business will have the best chance of being binding."

Source: Entrepreneur.com

 
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