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 reflect IRS final regulations defining 'spouse' for federal tax and benefits purposes.
Updated to include information on Swindol v. Aurora Flight Sciences Corp., which concerns a statutory equivalent of a public policy exception to the employment at-will doctrine.
Updated to reflect state Supreme Court ruling prohibiting courts from modifying the terms of noncompete agreements.
Updated to include requirements regarding physician restrictive covenants, effective July 12, 2016.
Updated to include amendments expanding discrimination protections regarding employee wage discussions, effective June 30, 2016, and forthcoming protections regarding reproductive health decisions and family responsibilities.
Updated to reflect unlawful practice of prohibiting employees from discussing wages, effective June 30, 2016 and forthcoming discrimination protections based on family responsibilities and reproduction health decisions, during hiring.
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.
Guidance for HR on the use of noncompete agreements to prevent employees from competing with the employer.