Understanding the limitations, restrictions of a noncompete agreement

Today's 21st century marketplace is more cutting-edge and competitive than ever.

It's no surprise that many employers in many different fields are asking employees to sign noncompete agreements in the event they leave the company to work for a competitor or themselves in a similar business setting.

But it's important for employers to understand that noncompete agreements, and the limitations and restrictions therein, must be fair and reasonable if they are to be enforceable.

The scope of the restrictions in these types of agreements often varies by state. There are, however, several that apply to most jurisdictions.

Lack of consideration

Like any contract, one party (the employer) simply cannot require an employee to sign a noncompete agreement without some sort of consideration in return. For new employees, such exchange can be a job. For existing employees, the consideration may be severance pay.

Scope of employees

Employers must have a legitimate business interest that needs protecting. Employers simply cannot force every single employee to sign an agreement not to compete. The employee must have particular skills or knowledge relating to the business.

Unrestrained geographic location

An employer cannot restrict an employee from competing in every geographic location across the globe. Noncompete agreements will most likely be upheld if they prohibit competition within the areas that the employer sells or distributes its product.

Unlimited duration

Noncompete agreements also cannot last in perpetuity. The restriction must state a beginning and ending time in which the employee cannot compete in the marketplace. Depending on the jurisdiction, a 2 year prohibition is acceptable. Alternately, that same time period may be too restrictive in other areas.

Employers considering noncompete agreements are encouraged to consult with an experienced legal professional before proceeding. Given the nuances of the law, the help of a lawyer can significantly reduce the risk of potential litigation down the line.

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