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Noncompete agreements (A.K.A. non competes, non-competition agreements, non-compete clauses, noncompete contracts, covenants not to compete) are usually contracts or clauses within a contract that restrict the ability of one or more parties to the contract to conduct business or seek employment within a specified industry or business, time period, geography, territory or market.  Noncompete agreements appear frequently in employment contracts, but are also used in contracts for the sale of a business, the sale of patents, the sale of trade secrets or the sale of other business assets or services.

Noncompete agreements are often used in combination with confidentiality agreements, non-solicitation agreements, non-disclosure agreements and similar employment or business restrictions, either as clauses in the noncompete agreement or as separate contracts.  The combination of these agreements may prevent a former employee from conducting competitive business directly or indirectly, especially by preventing that employee from soliciting customers or hiring away employees of the former employer.

Noncompete agreements can be used legitimately in the employment context to protect a company's valuable trade secrets, goodwill and confidential information when employees depart.  Protectable information may include customer lists, databases, pricing and marketing information, or product design or manufacturing specifications.  Many employers use noncompete agreements to prevent former key employees from having an unfair competitive advantage by using the company's trade secrets, goodwill, and confidential information to start a competing business or to join a competing business.  However, more and more companies are incorporating noncompete agreements into their standard "boilerplate" employment contracts, instead of using them only for key employees.  The result is that more employees, without customer goodwill or access to trade secrets or confidential information, are being restricted from seeking employment with the company's competitors.

Using noncompete agreements to restrict or prevent normal competition is unethical and former employees can often escape noncompete restrictions if the company has no legitimate business interest to protect or if the restrictions imposed are unreasonable.  The law on noncompete agreements is different in each state, so what is enforceable in one state may be unenforceable in another.  This site provides information and links on noncompete agreements generally and with regard to breaking noncompetes.

This information is not legal advice.  Please consult an attorney if you need legal advice.

Walter J. Toomey, all rights reserved.