Overview: One type of employment contract is the noncompete agreement. A noncompete agreement prevents an employee from pursuing a similar profession or trade in competition against the employer (usually post-employment). Noncompetition agreements are used to discourage an employee from working for a competitor using the specialized knowledge, skills, or confidential information gained while working for the employer.
The majority of the states recognize and enforce various forms of noncompete agreements. Generally, the terms of a noncompete agreement will only be enforced to the extent necessary to protect the employer's legitimate business interests. Most states will enforce a noncompete agreement if contains reasonable limitations as to the geographical area and time period in which an employee may not compete with the employer.
Trends: Last year, the Wall Street Journal reported that there has been a 61% increase since 2002 on the number of court decisions involving noncompete agreements. However, this number was based only on published decisions and did not take into account cases settled out of court or unreported decisions. Although employers enforcing noncompetes may be accomplishing their goal of discouraging employees from starting up a rival company, the practice may have the unintended effect of stifling innovation (especially in the high tech industry). In fact, in pursuit of economic development, innovation and entrepreneurship, the Governor of Massachusetts supports the elimination of noncompete agreements.
Author: Melissa A. Silver, JD, Legal Editor
Updated to include a state Supreme Court ruling clarifying reasonable notice when terminating an at-will employment relationship.
This How To details the steps an employer should take when hiring an individual who is subject to a noncompete agreement.
Updated to reflect trade secret protections under the federal Defend Trade Secrets Act, effective May 11, 2016.
Updated to include retaliation protections under the state paid family leave benefits law.
Updated to reflect the reduced enforceable term of a noncompetition agreement, effective January 1, 2016.
Updated to reflect new discrimination protections for victims of domestic violence, sexual offense or stalking, effective December 30, 2015.
Updated to reflect amendments to Delaware’s discrimination protections for victims of domestic violence, sexual offenses or stalking.
Guidance for HR on the use of noncompete agreements to prevent employees from competing with the employer.