What if my Employer want me to sign a non-compete? What does a non-compete mean?
A Non-Compete Agreement is a document that your Employer has you sign in order to protect their business interests if, and when, you are no longer an employee of theirs. It is an agreement between you and your Employer that states what you can and cannot do after you no longer work for that particular Employer.
A non-compete can specify where and who you can work for in the future. For example, a non-compete can specify that after you become separated from your current employer, you will not accept any work within fifty (50) miles of the employer’s place of business for a period of two years.
Some key questions are whether the non-compete is enforceable? What does a non-compete do? For a non-compete agreement to be enforceable, certain requirements must be met.
First, there must be “consideration” or an exchange of value. In other words, for you agreeing to sign the non-compete agreement, the employer must give you something in exchange. This is the main reason that non-compete agreements are signed when the employer first hires you. The employer agrees to hire you in exchange for you signing the non-compete agreement. There is “consideration” or an exchange of value in that circumstance.
If you are an existing employee and are asked to sign a non-compete, additional consideration is required to make the non-compete agreement enforceable. When you are first hired, employment is the “consideration” or exchange of value needed to make the non-compete enforceable. However, existing employees already have employment. Therefore, the employer must offer additional consideration, such as more money, more benefits, a new job title, etc. This would be sufficient “consideration” or exchange of value needed to enforce the non-compete agreement.
Second, the duration of the non-compete agreement must be reasonable. A common purpose of a non-compete is that when you leave your current employer, you won’t compete against them (by possibly obtaining a job at a rival company). This is where the “non-compete” comes in. However, the duration in which you are not allowed to compete against your former employer cannot be unreasonable long. For example, a court will likely refuse to enforce an agreement that prohibits an employee from competing against their former employer for the rest of his or her life. A non-compete that prohibits competing for a couple months or a year is more reasonable. The general rule is that the duration of the agreement should not exceed the time reasonably necessary to protect the employer’s legitimate business interests. However, reasonableness differs with each employer and industry.
Third, the restriction on where you can compete must not be too broad. Non-Competes usually describe a restricted area in which the employee cannot compete. In other words, your former employer doesn’t want you competing against them within a certain geographical area. Oftentimes this restricted area is determined based on a certain mile radius from employer’s headquarters. But the restriction must be reasonable. A non-compete that says you cannot compete within one hundred (100) miles of your employer’s headquarters will likely be unreasonable. A restriction twenty-five (25) miles would likely be considered reasonable. However, reasonableness differs with each employer and industry.
These are just a few things to consider when signing a non-compete or wondering if the non-compete you signed is enforceable.