A non-compete agreement is part of a contract (usually an employee contract, although they are also sometimes included in contracts with independent contractors, depending on the business) in which one party promises the other not to work for one of their competitors after working with for them. It usually includes a time limit, meaning after the time period has elapsed, you’re free to work for whomever you want. The time period varies, but six months to a year is typical.
There is also usually a geographical requirement. For example, your employer may not want you working for one of their competitors within a five-mile radius of their headquarters.
Noncompete agreements are a fairly recent invention, having become popular a few decades ago when the tech giants were starting to grow and employee poaching was a serious problem for the industry. So companies started including noncompete clauses in their employee contracts, primarily with high-level executives who had access to trade secrets and sensitive information the company didn’t want them to take straight to a competitor.
A noncompete clause is a company’s way of protecting one of their assets – in this case, their employees and the information to which those employees have access. There may be nothing wrong with a noncompete clause that asks a high-level executive not to take their talent and knowledge to a competitor, but companies have been including noncompete clauses in more and more of their contracts, even, in some cases, minimum wage employees at the bottom of the totem pole. They’ve also been extending the time limit and the geographical limit, especially as the internet continues to bring people and businesses closer together than ever before.
While there may be a time and place for noncompete agreements, they’ve grown increasingly contentious over the past few years as employee advocates say they’re unfair to workers, while business advocates say they’re necessary.
The employee advocates argue that noncompete agreements inhibit employee mobility and artificially suppress wages – the idea being that, without noncompete agreements, companies have to pay their workers more in order to keep them from leaving.
It’s always a good idea to read contracts carefully before signing them, and the same goes for employee contracts. If your employer asks you to sign an employment contract with a noncompete clause, check it carefully before signing. Is it fair? Or will it inhibit you from working for any other company in that industry ever again? Is there a time limit to the noncompete agreement? A geographical limit? Are they both fair and reasonable? If a noncompete agreement is missing one or both of these components, it may not hold up in a court of law.
There have been cases in which an employee has left their company for a competitor, only to be slapped with a lawsuit for breach of contract. Sometimes they give in, but some of them have challenged the validity of those noncompete agreements and emerged with the court on their side.
Also check the employment laws in your area. Most states recognize the validity of noncompete agreements within certain restrictions, but those restrictions vary. California does not recognize any noncompete agreement, even if they were signed in another state.