Understanding Non-Compete Agreements: Definition & Tips

What is a Non-Compete Agreement? Definition & Meaning

A non-compete agreement is a contract between you and your current, and — possibly — former, employers that usually imposes some limitations to your employment options after you no longer work for this employer.

Typically, the employer requires employees to sign a non-compete to protect the organization from an employee taking important competitive information with them to a new job with a competitor.

Non-compete agreements usually apply to you when you have moved on to your next employer. So they are very important to your future.

9 Non-Compete Agreement Tips

Whether you’re searching for a new job or signing on to the job of your dreams, it’s important to be aware of the terms of the non-compete agreement that you are asked to sign.

If you sign, or have already signed, a non-compete, retain a copy of the agreement for your records in your home or other safe place off your employer’s premises.

Often, you have no choice about signing a non-compete agreement, if you want to to work for the employer.

NO guarantees, but these tips can help understand what you have signed and possibly help reduce your risk of a legal battle.

NOTE: The information provided is intended as a broad, general overview and is not legal advice.

1. Be aware of your non-compete.  

Before you sign, it’s a good idea to have someone knowledgeable review the agreement to assess the scope and enforceability of post-termination restrictions. You may be able to negotiate revisions.

If you’ve already signed a non-compete, you’ll want to be aware of what the document says so that you can assess how it may affect your future business plans.

2. Be prepared to answer questions about previous non-competes.  

Prospective employers are likely to ask about previously signed non-competes.  They don’t want to be surprised by a former employer seeking to enforce restrictions.

3. How enforceable is the non-compete?

The law favors allowing people to earn a living in their chosen profession.  Overly broad restrictions are not enforced.

As a general rule, non-compete agreements are enforceable if they:

  • are fair and reasonable (in scope, duration & geography);
  • protect legitimate business interests; and
  • do not impose substantial hardship (preclude a person from earning a living).

To make the agreement “reasonable,” suggest that the restrictions be limited to direct solicitation of customers or working on specific projects of direct competitors.

4. Has there been a material change in your employment since you signed the non-compete?  

A non-compete may become invalid and unenforceable as a result of a “material change” in employment. “Material change” includes changes in compensation, responsibilities, direct reports and title.  If you have received a promotion or job change, the original non-compete may no longer be valid.

5. Ask whether everyone is required to sign the same agreement.  

The non-compete needs to be tailored to the specific situation. The type of position and duties involved greatly influence the individual’s access to company confidential information and the potential for harm to the company.  Hence, post-employment restrictions are appropriate to protect legitimate company interests for employees with access to key technologies or key customers. A boilerplate, “one-size fits all” non-compete, is less likely to be enforceable.

6. During your job search, don’t use company time or resources.  

If you’re planning to leave, remember that as an employee, you have a duty of loyalty to your employer.  This means it’s usually OK to work on your job search or your next business opportunity on your own time (nights and weekends) but it’s not OK to work on the job search  during the employer’s work time or using employer resources.

7. Exit carefully.  

If you’ve signed a non-compete, and you’re going to work for a competitor, you’ll want to carefully plan your transition.

I encourage employees to leave on good terms, if possible.

Sometimes the former employer can become a customer or potential business partner.  If that’s not possible, plan your departure and transition carefully to avoid a direct violation of the non-compete and hence reduce your risk.  Sometimes, departing employees position themselves to be “laid off” or “fired” or appear to be pursuing another activity.

8. Do not take any company confidential information with you.  

Do not take (or email) any company confidential information.  Use a personal email account (not the company’s email system) for any communications related to your next business opportunity.

Be VERY careful in job interviews for your next job. Sometimes an employer asks you in for an interview only to “pick your brain” about what your current employer does or how they do it. Read 5 Landmines to Avoid when Interviewing at Competitors for detailed information.

9. Keep a low profile (for a while).

Sometimes employers want to “set an example” to keep other employees in line, so it’s better to keep a low profile and avoid provoking the former employer.

The Bottom Line on Non-Compete Agreements

To achieve a smooth job transition and reduce the risk of a legal battle about a non-compete, it is wise to get experienced legal advice. Reasonable non-competes are enforced to protect an employer’s legitimate business interests. Departing employees can reduce their risk by using these tips to anticipate and prepare for issues related to their non-compete.

More Information About Non-Compete Agreements

About the author…

Business Attorney, CPA and 3-time entrepreneur, Jean Sifleet provides practical advice for business challenges based on her first-hand experiences. Her book “Smart Fast, The Desktop Reference Guide for Running Your Business” is a great resource for learning how to avoid legal pitfalls in business.

Don't forget to share this article with friends!