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Non Competition Agreements and Its Principles

Mesriani_Law_Group | May 6, 2010 |

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An employment contract states all the agreements made between the employer and the employee. This serves as the legal document that indicates the terms and provisions of the company to the employee, as well as the benefits that are entitled to the employee. The agreement may be either written or implied, but every detail should be fulfilled.

Non-Competition

Employment contracts often include non-compete agreement details. Non competition is an agreement which states that employees are not allowed to work for their previous employer's competitors after leaving the company, so it naturally takes effect after the employer-employee relationship has ended.

The Principles of Non-Compete Agreements

There are different laws regarding non-compete agreements in each state. But there are principles that should be present in every agreement.

· Reasonableness: The reason behind the agreement should be fair and valid for both the employer and employee. It should not hinder the employee's right from getting other employment opportunities and at the same time, protect the company's business interest.

· Independent Consideration: Some states require the employer to offer the employee something for agreeing to the clause, the most common example is provision of employment if the agreement was made before the employee was hired. If it was made after the hiring, some other benefits should be given.

· Duration: The time period of the agreement should be limited. Courts usually allow duration of one to two years. In case of a business buyer and the previous owner, the court may allow both parties to negotiate the time frame.

· Distance: The geographic limits of the old and new employer. Employees should be allowed to work for a new company if it won't affect the business of the old employer because of geographic reasons. Courts may also limit the agreement to a small area.

· Blue Pencil Rule: The blue pencil rule states that the court is authorized to modify a non-competitive agreement if it limits the employee too much. Although, there are certain states that consider this rule unacceptable.

· Liability for New Employers: Some states hold new employers liable and may sue them for damages. It is the employee's responsibility to inform the new employer about any non-competition agreements that were made before so as not to cause trouble to them.

Non compete agreement may make it hard for employees to get a new job, but they should remember that breaching this agreement means penalties and damages for them.