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: Several states have either passed or are considering legislation that would change how noncompete agreements are regulated. For instance, Illinois became one of the first states to ban noncompetes for low-wage workers. Also, in 2016 several states enacted laws prohibiting physician noncompete agreements. Further, a few states have passed laws limiting the duration of noncompete agreements.
Author: Melissa A. Silver, JD, Legal Editor
Updated to include forthcoming amendments to Utah noncompete law regarding broadcast employees and Oregon noncompete law regarding personal support workers.
Updated to reflect forthcoming law regarding restrictive covenants for personal support workers.
Updated to include amendments to noncompete law regarding physicians, effective April 2, 2018.
The Department of Justice may soon bring criminal enforcement actions against employers that have "no poaching" agreements in place not to recruit certain employees or not to compete on compensation terms.
Guidance for HR on the use of noncompete agreements to prevent employees from competing with the employer.