Beware of the Non-Compete Agreement: 5 Legal Guidelines to Educate Yourself

Beware of the Non-Compete Agreement: 5 Legal Guidelines to Educate Yourself

Upon gaining new employment, one of your first tasks is to complete the ample amount of paperwork the company will give you. Along with documents such as the employment contract, security clearances, you may also be asked to sign a non-compete agreement. Employers do not often give you the option to refuse to sign this non-compete agreement, however, this document can have a serious effect on your future employment. Before signing a non-compete agreement, it is important to understand what this document means and what are its repercussions.

1. Definition

A non-compete agreement is a document that an employer requests an employee to sign to ensure company security after that employee has left the company.  It is a type of restrictive guarantee that determines the rights and obligations of an employee after employment with that company. The common goal of this type of contract is to ensure that the employee does not directly compete with this company post-employment.

Competing with the company can include working for a competitor, bringing clients to new employment, or using insider information for an outside purpose. These contracts only take effect after termination or resignation of employment but must be signed prior to beginning employment.

2. Purpose

As mentioned, there are many reasons why an employer may ask you to sign a non-compete agreement. Some examples are:

  • To protect sensitive company information from being exposed to or used by external parties.
  • To prevent the possibility of bringing clients that were established at the current company to a new employer.
  • In the case an employee leaves the company to work for a competitor or start their own business, to prevent the employee from using business models, client lists, or future ideas and products.

3. Potential consequences

The reasons you need to carefully read and understand all terms of the non-compete agreement prior to signing follow:

  • Signing a non-compete agreement could prevent you from continuing employment in your field of experience or industry of choice.
  • Hiring an employee under a non-compete agreement can be difficult and risky and can potentially be seen as a disadvantage during the job application process.
  • Depending on the agreement, some clauses can be unjust and very difficult to maneuver. After landing a new job, you may have to remove yourself from certain projects in order to maintain your agreement.

4. Future employment

Thankfully, as these non-compete agreements can have a serious effect on future employment, courts do not often favor in the way of this clause but rather on the employee trying to make a living. Furthermore, most often non-compete agreements have many stipulations in order to be executed properly in the case of competing post-employment. There are three things that a non-compete clause must have in order to be a legally binding document:

  • Be supported by reasonable consideration at the time it is signed by the employee. For example, an employee cannot be asked to sign a non-compete clause weeks before termination.
  • Must protect a legitimate business interest of the employer such a privy information or client lists.
  • The non-compete agreement must state its terms within a reasonable scope, geography, and time frame.

5. Legal action

If you are asked to sign a non-compete agreement, make sure to carefully read all stated clauses. Agreeing to this can determine your future, post-employment with that company, and potentially affect your ability to work in your desired industry. It is recommended to always have an employment lawyer review and document any contracts for post-employment protection.

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