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
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Updated to reflect the reduced enforceable term of a noncompetition agreement, effective January 1, 2016.
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Updated to reflect amendments to Delaware’s discrimination protections for victims of domestic violence, sexual offenses or stalking.
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In-depth review of the spectrum of Texas employment law requirements HR must follow with respect to terms of employment.
Guidance for HR on the use of noncompete agreements to prevent employees from competing with the employer.