Hi Again! In my last post, I discussed non-disclosure agreements (NDAs) and how they’re used, reasons you might want one, factors that impact whether the NDA is enforceable in court, and other issues in a clever question and answer format. In this post, I’m going to do the same thing for non-competition agreements (A/K/A “non-competes”).

Sounds good, let’s get started. So what is a non-competition agreement?

It’s an agreement or contract where a party (usually the employee) agrees not to enter into a similar job, profession, or trade, or to start a business that would compete with the other party (usually the employer). As with NDAs, this can be a separate agreement or a clause in an employment or severance agreement. Non-competition clauses also can be found in agreements between two companies, but for this post I’ll focus on the employee-employer relationship.

OK, great. Why would you need one, and what are they for?

Say you’ve worked somewhere, and while you were working there, you built up relationships with business partners or customers. Maybe you’ve also learned some things that are not widely known in the industry. In the legal world, these are called “goodwill” and “trade secrets”. In general, companies like to limit the ability of former employees to use goodwill or trade secrets against the company in a new job of business venture.

This makes sense from the company’s side, since you don’t want former employees to steal your customers or use your secrets against you. But people have the right to earn a living without having to go into a new career field or move across the country every time they change jobs, so the interests of the company need to be balanced against the rights of the employees.

That sounds complicated. How do courts decide these things?

It depends from state to state, and some states will flat-out not enforce a non-competition agreement. But in most states, courts generally look at several factors, including the type of job the employee held and whether they have special knowledge or were performing unique work. Courts typically also look at the restrictions contained within the non-competition agreement, including how long the non-compete lasts and whether it covers a specific geographic area.

For routine jobs that don’t require any kind of special skill or knowledge, a court will probably not enforce a non-competition agreement against an employee. For a highly-specialized job with unique knowledge, the chances that a court will enforce a non-compete are much higher. The same idea applies to the non-competition restrictions—shorter restrictions that are limited to a specified geographic area are more likely to be enforced than restrictions that last forever and cover the entire United States.

What happens if you violate the non-competition agreement?

Usually, there will be a provision giving the party trying to enforce the agreement the right to an injunction from a court—basically, a court order saying “stop what you’re doing while we figure this out” (i.e., a temporary injunction), or an order saying “OK, we have decided that you need to stop doing what you’re doing”, i.e., a permanent injunction.

There might also be a provision for “Liquidated Damages”. This just means that the parties have agreed in advance on a set amount of money that the party violating the agreement has to pay the other party.

Is a court going to do that?

Maybe, depending on the type of job, the restrictions in the non-compete, the damages involved…it can get complicated. This is why you should get a lawyer involved, whether you’re on the corporate side and need to have one drafted to protect your rights, or you’re an employee who has been presented with a non-competition agreement and you want to understand how it affects your rights.

About that…are you my lawyer?

For once, I can give a definite answer—No! Unless we have reached an agreement for you to become a client of the Law Office of Edwin Wang, PLLC, I am not your lawyer. But I could be!