Employees strive to find and stay meaningfully and gainfully employed. In times of difficult economies and tough markets, it is common for employees to shop around and bounce from one job to another. Employers want to keep employees, especially key employees or employees with access to confidential or proprietary information. Employers may require an employee to sign a non-compete agreement restricting the employee’s right to work for a competitor or in a competitive industry. A non-compete affects the employee’s ability to be gainfully employed, but the agreements are enforceable.
In the context of non-compete agreements between employees and employers, a distinction must be drawn between a “right-to-work” law and the individual right of an employee to be gainfully employed. A right-to-work law is typically a law governing the relations between unions, laborers, union dues the rights in collective bargaining agreements; they typically have no effect on a non-compete agreement. An individual employee’s right to be gainfully employed (meaning his right to find work that he is suitable to perform) can be affected by a non-compete agreement.
Non-compete agreements affect both the interests of the employer and the employee. From an employee’s perspective, the agreement may hinder the ability of that employee to find suitable employment. From an employer’s perspective, the agreement can protect legitimate interests of the business, such as ensuring trade secrets and proprietary information are not divulged to its competition. Valid non-compete agreements must balance both of these interests in a way that is fair to both the employer and the employee. As a result of this need for balance, there are limits on the scope of non-compete agreements.
Limits to a Non-Compete
Each state interprets the limits of non-competition agreements in accordance with their own laws. Despite this, three overriding concerns are at play: the reasonableness of the scope, the duration and the type of work prohibited in the agreement. Non-competition agreements will not affect an employee’s right to be gainfully employed if the agreement is narrowly tailored and only applies to limited geographical region (scope), for a limited amount of time (duration; typically, not more than three years) and only applies to the work the employee actually performed for the employer (the type of work).
Extra Consideration for Signing
A fourth factor courts look to is whether the employer paid something extra to the employee in return for signing the agreement (extra consideration). Sweetening the deal a bit (with more salary or more benefits, for example) can help tip the scales in favor enforcing the agreement. Employers must always keep enforceability in mind, however, and employees must always consider the effect the non-compete may have, especially if it is enforced.