Non-Compete FAQ
What does “Non-Compete” mean?
A Non-Compete form can come in a few different packages, but typically it constitutes an agreement between two parties wherein one party promises not to compete with the other party after the termination of their business relationship. Perhaps the most common form of a Non-Compete Agreement is that of the Employee Non-Compete Agreement, between a business and a new employee. In this agreement, a new employee promises not to directly compete with the company (at least, for an extended period of time) after the termination of the relationship.
Businesses will typically use Non-Compete forms in order to protect trade secrets; otherwise, any employee would be able to work for a competitor and directly and negatively impact the original business.
What kind of Non-Compete Agreements are there?
There are two chief Non-Compete Agreements that most people deal with:
- Employee Non-Compete: As described in the answer to the question above, an Employee Non-Compete is focused on making sure that a company’s new hire is not someone who will then be able to quit or get fired and directly compete with the business thereafter.
- Non-Compete After the Sale of Business: Many businesses seek to beat out their competition by buying them out; this would not be such an advantageous way out of the conundrum if the person being bought out could then start another competing company right after the sale. The Non-Compete after the Sale of Business is an agreement aimed at avoiding just that scenario. (Note: it’s important to remember that this agreement doesn’t transfer any actual business property, but is simply related to the competition aspect of the transaction).
These two forms are typically the types of Non-Compete agreements most people encounter throughout their lives.
I just got hired at a new job. Should I sign a Non-Compete Agreement?
Many businesses will require you to sign that kind of agreement, but the ultimate decision is yours. It’s important to remember that the company you’re signing with isn’t necessarily betting against you simply because they’re having you sign this form – at least, not if they have all of their employees sign the same form.
Unless your future plans directly clash with what you’re reading in the Non-Compete Agreement you’re being asked to sign, there are few reasons to feel uncomfortable signing such a document. It will be important, however, to make sure that you understand what’s in it and how long the terms last.
How long will my Non-Compete Agreement last?
This is one of the most common questions about these agreements, and the answer is as simple as looking in the Non-Compete Agreement that you signed. The language should all be there, often with a blank to be filled in detailing just how long the Non-Compete terms will last. These are most often measured in either months or years, so it may be a long time before you can next decide to compete after signing one of these agreements. However, there generally is an expiration date on these terms and you should be aware of them when signing.For a Non-Compete to be valid, its term must be “reasonable.”
Isn’t “compete” a flexible word?
Yes, though it depends on whether you’re an employee or whether you’re selling a business. Indeed it can be difficult to define exactly what competition means on the open market, which is why many Non-Compete Agreements will define what competition means.
When it comes to a Non-Compete After the Sale of Business, “compete” generally boils down to the formation of a new business that is similar to the business you’re selling. For example, if you were to sign a Non-Compete Agreement when selling your soft drink company and soon thereafter start your own, the Non-Compete Agreement would almost certainly kick in and your original company may have legal grounds to challenge what you’re doing. So in this case, the word “compete” can be flexible, which is why it’s important to know exactly how your own contract defines “compete.”
In terms of the Employee Non-Compete Agreement, there is often an additional provision about “conflicting employment” in which you agree not to seek employment with another similar company while working for the first company. After the termination of the business relationship between the two parties, “Non-Compete” will generally refer to engaging in any business that is similar to the original business.
Can a Non-Compete Agreement be modified later?
Yes, but only if both parties agree to the modification. This is typical of most contracts between two parties. It’s important to remember the ability to modify your Non-Compete Agreement later on if you’re ever in negotiations about, for example, a severance package.
What if I get fired – is the Non-Compete Agreement still in effect?
Yes - the termination of the business relationship through firing would fall under the umbrella of the overall ending of any business relationship between the two parties. Whether you’re fired or you quit, the Non-Compete Agreement will still bind you to avoiding direct competition with your former employer.
What other limitations are typical of Non-Compete agreements?
In addition to your personal responsibility not to compete with a business after a certain transaction (or the termination of a relationship), there are often other clauses included that can further limit your options. For example, many Non-Compete Agreements will make it clear that you cannot solicit your former colleagues or employees; this would be in direct competition with the business for employees and would constitute a breach of the contract.
How do I end a Non-Compete Agreement?
You can either let it expire under its own terms or simply ask the other party to sign a modification to the agreement; otherwise, you’ll be bound to the agreement you signed.
When is a Non-Compete Agreement valid?
There must be “Consideration” present for both parties in order for a Non-Compete Agreement to be valid. That’s why Non-Compete Agreements typically hinge around interactions like new hires or the sale of a business; both parties must be getting something out of the agreement. In the case of an employee, for example, the new job would be included as Consideration.
