June 1, 2021
What is a non-compete agreement?
As the name suggests, non-compete agreements prevent employees from accepting a job that “competes” with their current employer. Most of the provisions not only avoid competition while you work for your current employer but also for a period after your employer resigns, often for up to two or three years. Many provisions also establish a geographical limitation on the restriction of competition.
Not being able to work in your field for a full two to three years after leaving your job is a possibility that should be seriously considered. Imagine that you find yourself having to quit work or are suddenly fired. It’s a hassle without a non-compete agreement, but you can jump to another company that will pay you fairly. However, with a non-compete agreement, you have to decide whether you want to live with the abuse, move, or change fields. A non-compete agreement gives your employer a giant bargaining chip, and you don’t know who will have that coin years after you’ve signed the deal.
What to consider before signing a non-compete agreement
First, think about what activities are prevented by the no-compete provision. A hypothetical restriction on working for another company selling a specific software platform will be less of an issue than a hypothetical restriction on selling any product to a customer of your current employer. Sometimes the activity restriction is limited enough to be sure that you can find many other jobs in your field that would not violate the non-compete provision. When that is the case, the risk of signing the restriction is minimal.
After considering the scope of employment options covered by the non-compete agreement, consider the geographic range and duration of the restriction. If you are in your location only until you leave work, then a three-year limitation on same-state employment probably won’t matter to you. If you have spent money to buy a home in the area, you are in a different position.
Are these agreements enforceable?
In California, agreements that prevent an employee from competing against a former employer can generally be rejected. But this does not mean that there are no limits. For example:
- A non-compete clause can be used against a former business partner or a former member of an LLC.
- Your employees can be legally prohibited from using trade secrets (such as customer lists).
- An employer can prohibit former employees from using confidential information to alienate current employees.
