Why Are Legal Restrictions Placed on Noncompetition Agreements

Non-competition obligations between employers and employees, generally found in employment or termination agreements, prohibit the employee from performing work that competes with his or her employer`s business. This prohibition usually begins with employment and lasts for some time after the employee no longer works for the employer. Non-compete obligations generally describe the duration of the non-compete obligation, the geographic limitation of the non-compete obligation, and the types of work that the employee is not permitted to perform during the non-compete obligation. Almost all States have a slightly different approach to the applicability of non-competition clauses. In fact, some states consider non-compete clauses to be excessively restrictive of competition – meaning that they are enforceable only in certain circumstances or not enforceable at all. [50] Nagele-Piazza, op. cit. O., footnote 47; see also Mark P. Carey, Covid-19 and Non-Compete Clauses: 4 Situations Where They Are Unenforceable, Carey & Associates, P.C.

(March 30, 2020), capclaw.com/covid-19-and-noncompetition-agreements-4-situations-where-they-are-not-enforceable/. In addition to monitoring state and federal developments with respect to non-compete obligations, employers should consider existing enforcement parameters. In general, non-compete obligations should not be broader than necessary to protect the legitimate business interests of the employer. Employers should not assume that a court will apply overly broad provisions in blue and in part because a court may not have the power to do so or may simply refuse to apply an overly broad non-compete obligation. In order to increase the likelihood that a non-compete obligation will be enforceable in its written form, the agreement should be closely tailored in terms of duration, geography and nature of the prohibited competitive activities. For example, a provision prohibiting work in any capacity for a competitor may be challenged. Even with significant restrictions on the use of these agreements, employers can protect their assets in other ways. For example, strict non-solicitation clauses on the part of clients may be enforceable if broader non-compete agreements are not, and employee non-disclosure agreements are generally enforceable if appropriately adapted.

In addition to contractual restrictions on competition or advertising, employers should maximize the protection of their trade secrets and other confidential information through practical measures such as enhanced data security measures, employee training to protect company information, and consistent enforcement of security and privacy policies. The content of this website is not intended to be legal advice and should not be relied upon as such. It is general in nature and may not reflect all recent legal developments. Thomson Reuters is not a law firm and your use of this website does not create an attorney-client relationship. You should consult qualified legal counsel before responding to any content on this website. 4. Employers often draft non-compete obligations that are too broad or unenforceable. Companies often require their employees to sign non-compete obligations that are not enforceable in some jurisdictions. Some States discourage employers from drafting non-compete obligations that are unenforceable by refusing to enforce and invalidate a non-compete obligation that contains unenforceable provisions. 3.

Non-compete obligations, their effects and enforceability are often unclear to the employees involved. Workers are often misinformed about the existence and details of their non-compete obligations and the relevant legal implications. In addition, workers in states like California, where noncompete obligations are generally unenforceable, may not be aware of their legal applicability. Why non-compete clauses? Non-compete obligations harm workers and labour markets by limiting opportunities for workers and making it harder for companies to hire workers. In all industries and wages, non-compete clauses have been shown to reduce workers` wages. The prohibition of non-competition ensures that workers are free to look for new jobs, keep multiple jobs and start their own businesses. However, one thing you need to remember is that just because you live in a state that allows non-compete obligations doesn`t mean all non-compete obligations are enforceable. In fact, failure to comply with any of the above factors may be sufficient to invalidate a non-compete obligation, even in States that generally apply it. In the coming months, the White House, along with the Treasury and Labor departments, will bring together labor, corporate, government, and corporate law experts to facilitate discussion on noncompete practices and their consequences. The aim will be to present more specific best practices and call on state legislators to take action to advance reforms to combat non-compete abuses. Some companies have argued that non-compete obligations are even more important during the pandemic, saying trade secrets are harder to protect when people work from home with less supervision. [49] However, some researchers have noted a decline in the use of non-competitions since the pandemic due to labour shortages.