Has your employer or prospective employer asked you to sign a noncompete agreement? If so, read it carefully. When you sign a noncompete agreement, you are typically agreeing not to compete with the employer—by working for a competitor or by starting a competing business—once your employment relationship ends.
You may not have much choice about whether to sign the agreement if you really want the job. However, it’s important to know what rights you’re giving up. And, if the agreement restricts your ability to earn a living too much, it might not be enforceable in court—which might give you some additional bargaining power.
What Will You Get for Signing?
A noncompete agreement is a contract. When you sign, you give up the right to work for, or start, a competing business. In exchange for your promise, your employer must give you something of value. Otherwise, the contract is unenforceable.
If you are asked to sign the contract when you start your job, most states will enforce it. You are getting something of value—a job—in exchange for your agreement. However, the same is not necessarily true if you are already working for your employer when you are asked to sign. In some states, your employer must offer you some additional benefit for the contract to be valid, such as a promotion, bonus, or raise. An employment lawyer can explain your state’s rules.
Will a Court Enforce the Agreement?
Although noncompete agreements are allowed in most states, this is not true everywhere. A few states won’t enforce noncompete agreements as a matter of public policy. In California, for example, the legislature has found that noncompete agreements unduly restrict an employee’s right to earn a living. Under California law, it is illegal for an employer to even ask an employee to sign a noncompete agreement.
In most other states, a noncompete agreement will be enforced as long as it is limited in time, geographic scope, and effect. (For a more in-depth look at these requirements, see What Is a Noncompete Contract?)
How Long Does the Agreement Last?
A noncompete agreement can’t last forever. To be enforceable in most states, the agreement must be reasonable in duration. The amount of time considered to be "reasonable" depends on the state. In general though, noncompete agreements that last longer than two or three years might not be enforced by a court.
Where Is the Agreement Effective?
A noncompete agreement must also be limited in geographic scope. How broad an area the agreement may cover depends on your employer’s business model and competitors. For a small service business with a mostly local clientele, a court might find a statewide or even a county-wide noncompete too broad to enforce. On the other hand, if you work for a larger company that has offices throughout the region, a noncompete that applies in all counties where your company does business might be enforced.
Which Competitors Are Off-Limits?
A noncompete agreement may not be too broad in its definition of competitors, either. For example, if you designed equipment for a coffee roasting company, your employer might reasonably require you not to work for a competing coffee roaster. However, if the agreement prohibited you from taking any job in food manufacturing, or preparation, it might be too broad. Similarly, if your employer develops exercise tracking apps for smart phones, a noncompete preventing you from working or starting your own tech company would likely not be enforced.
Talk to a Lawyer
The law varies from state to state as to how many restrictions an employer may place on employees through noncompete agreements. If your employer asks you to sign a noncompete, and you're concerned that it might prohibit you from earning a living or pursuing your chosen profession when it’s time to move on, consult with a lawyer before signing. An employment lawyer can tell you how likely it is that the agreement will be enforced or whether you might have some room to negotiate.