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What is a Non-Compete Agreement?

Employees often sign non-compete agreements when they are hired.
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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 08 April 2014
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Non-compete agreements are often drafted as part of a basic employment contract, or are included as a separate document that is reviewed and signed at the beginning of a term of employment. Essentially, the non-compete agreement ensures that upon the termination of the employment period, the former employee will not engage in activities that place him or her in direct competition with their former employer. While the exact terms of a non-compete agreement may vary and are subject to local laws regarding employment, the non-compete agreement is generally an effective means to ensure that former employees do not make use of proprietary information to lure away customers and thus damage their former employer.

Most non-compete contracts will usually specify a specific time frame that the former employee is expected to refrain from engaging in employment that will place him or her in direct competition with a former employer. Generally, the time frame ranges from one or two years to up to five years. There are two basic reasons for this strategy. First, even if the individual had intimate knowledge about the inner workings of the company, that knowledge becomes increasingly obsolete over time. Second, the accuracy of such important matters as the contact information for the top ten clients of the company will also decrease with time. The end result is a former employee who is not able to utilize proprietary information to steal away customers and thus hurt the profitability of the company.

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In many instances, the non-compete agreement is contained as a section or clause in the larger employment contract. State laws will often come into play in determining what types of provisions may be legally included. For instance, in a right to work state, a former employee could not be prevented from going to work for a competitor, although the former employee would be open to litigation if he or she contacted customers of the corporation for the purpose of luring their business away.

Also, the burden of proof is on the former employer to demonstrate that the terminated employee has taken any direct action that has resulted in a loss of profit or credibility to the company. This means that an individual who worked in Sales for Company A, but left and took a sales job with Company B in the same industry may very well be able to do so in spite of having signed a non-compete agreement. As long as the employee does not contact entities that were customers of Company A during his or her time with the company, and does not use his or her knowledge about the rates, marketing plans, or internal working of Company A, it would be virtually impossible to prove that Company A has suffered at the hands of the former employee.

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Discuss this Article

anon944606
Post 18

These communications are actual. Bottom line: I am keeping my options open and will never sign a no competition contract. It's as if a company is attempting to purchase me and all my future earning abilities when I sign such a contract.

As a clinical psychologist in private practice for many years, the request for me to sign such a contract is an absolute deal breaker. No way, no how. It's an unreasonable boundary expectation to attempt to own me, without compensation upon termination. Unacceptable.

anon925243
Post 17

I never signed a no compete contract. The agreement is between the company that laid me off and a similar company. I collected unemployment and went to work for a different business type. I was laid off and again on unemployment through the last company. The first company says I am their employee and can't work for the other company. I have never seen the no compete contract. I live in Texas. Can they do this?

anon324434
Post 16

I worked for a consulting company and my contract was finished at the end of Dec 2012. From that day until now, I have not been able to get another job. I got a call from a consultant and they are happy to place me, but the workplace is the same (I was placed by my previous consultant). In my previous employment contract, there is a conflict of interest clause saying I should not work with any of their clients for six months from the date of termination. Now it is blocking me from work and affecting my income. Is this condition valid? Please guide me!

anon256755
Post 15

I recently left a mental health clinic in NYC where I was a social worker to start private practice. Management reminded me I had signed a "do not compete" clause when I was hired six years ago which said I couldn't solicit former clients for two years.

However, a few former clients have approached me via email independently to ask if I would resume treatment with them as they are dissatisfied with many policy and staff changes at the clinic. Do their rights as "mental health consumers" trump the rights of my former employer? Note I did not solicit or contact these clients. Please advise.

anon256599
Post 14

I work for a company now and they send me to homes to care for the sick, Where they send me they don't like the company and want to quit but would like for me to still come out. I signed a contract. What should I do?

Loki007
Post 13

I know this question has already been asked but as I did not see a reply, I'll ask it again: Is it illegal to volunteer your services when you've signed a non compete agreement in the state of Missouri? Are you only breaking the non-compete agreement when you are a paid employee for a company, versus simply volunteering your services and not receiving any form of monetary compensation for said services?

anon175447
Post 12

I was putting together a business in Texas under the same type of work but had no intention of doing it after I thought about it. Ten months later, my employer found a business card with my name on it and fired me. I do not have any noncompete agreement and now need to file unemployment. He said he fired me for cause but he didn't. My work was exceptional and now he won't even do a letter of reference for me. Can I get unemployment while I look for a job?

anon147799
Post 11

I live in the state of Alabama (which is a right to work state) and I signed a non-compete agreement with my previous employer. I have been been offered a position with a company that is somewhat similar to my previous employer (they sell similar products). Will I be in violation of my non-compete agreement if I take this job offer?

anon120935
Post 10

Is it illegal to volunteer your services when you've signed a non compete agreement? Are you only breaking the non-compete agreement when you are a paid employee for a company? What about if you are volunteering your services and not receiving any money?

anon112421
Post 9

I am in Michigan and I worked for a salon that was unlicensed and did not provide me any training. However because I signed a non compete my former employer is stating that I cannot work on the same block in another salon.

I have a sign up in the window with my name in public and many of my old clients which I secured by marketing myself in flyers and online have seen the sign and followed me to the other salon. But I have not taken any of her clients. Hair clients are very picky about who does their hair.

I want to know if I am in violation or have a liability when the entire area for a quarter mile in each direction is covered with salons and they basically all do the same services? I am not contacting any one directly and I am not using any of her connections or secret formulas to compete. I am just doing my trade a few yards down from her.

anon106815
Post 8

Thank you for the information that you provided. it was very helpful.

anon83183
Post 7

this was very helpful. thank you.

anon82844
Post 6

I signed a non compete clause for a year with a training corp. in texas but i left the business and since then it has new owners. I would like to start my own training business but would I be breaking the non compete since ownership of the company has gone from corporate owned to franchise owned?

anon79824
Post 5

I was a sales person for a staffing company. i do have a non compete form signed, however i want to know how liable would i be for any lawsuits if i was contacted by a former customer requesting my services again now that i a working for another employer within the staffing industry? Can i service the customer since they contacted me?

anon32253
Post 4

The company I work for failed to get a winning bid. There were 3 companies that put a bid in for a contract with the state of KY. The one I work for lost and now says that we(the employees) do not have a job, that we can file for unemployment, and due to a "non compete form" cannot work for the company with a winning bid. The company that won the bid has already said that they would re-hire us(the 6 workers). The head person of the over all site had put in the agreement with the new company her wishes to keep us(the old workers) on the site. The cause was maintaining a level of normalcy within the compound. Would an agreement(the non-compete form) be liable since we, the workers, would not be competing with the former employer?

anon26836
Post 3

I work for a homehealth agency as a social worker and a marketer. I signed a non-compete which I was told that it was for marketing only. I am leaving this company and going to work for another homehealth company as a social worker. My old employer is saying that I can not do that due to the non-compete. Can you help me?

mdt
Post 2

Whether that is the case or not depends on two things. First, the exact verbiage used in the non-compete clause of the agreement that is currently in force. If it precludes the type of arrangement you have in mind, then contractually your erstwhile agents are correct. However, there is the matter of current laws governing non-compete agreements in your state or province. If you and the company are both located in a right to work state, it may be impossible to enforce the non-compete clause anyway. If you know an attorney who is well versed in corporate law in your area, have him or her take a look at the clause before you proceed.

ssreltd
Post 1

I recently sold my real estate company some of my former agents. I would like to list my house with them under a Exclusive Agency Contract which will enable me to sell the house myself without owing any commission the the firm. I would pay for advertising under the company banner and even give them any prospects that I receive, but they feel that I am in violation of the non compete clause in our contract. I don't think I am since I am offering them prospects and free advertising. What do you think?

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