6 Things to Know About Non-Competition Clause
The non-competition clause, otherwise known as a ‘Non-Compete’, is typically an agreement between an employee and employer that prevents the employee from participating in a business that competes with the employer.
Not all Non-Competes are enforceable, and often courts will strike them out of employment contracts for constituting a ‘restraint on trade’. Whether you are being pressured to sign a Non-Compete, or have already agreed to one, make sure you know these six things:
- Non-Competes cannot be forced: A Non-Compete is an agreement between two parties. In order for an agreement to be enforceable, each party to the agreement must receive something of value. If you agreed to the Non-Compete after commencing employment, and did not receive an incentive for doing so, your Non-Compete may be unenforceable.
- Non-Competes are generally unenforceable against former employees: There is a public interest in allowing individuals to pursue their livelihood as they see fit. Where there is an imbalance in bargaining power (e.g. the employee had little or no say into the terms of their employment contract), the Non-Compete is less likely to be upheld.
- Non-Competes must be limited in scope: A Non-Compete that lasts for two years and applies to all of North America is less likely to be enforced than one that lasts for six months, and applies to a small geographic territory.
- Non–Competes will not be upheld where a non-solicitation clause will do: Employers utilize non-competes to protect their business interests. Often that interest takes the form of a client or customer list. Courts will refuse to enforce a Non-Compete where a non-solicitation clause protects the employer’s interest.
- The employer must prove actual harm: In order for a Non-Compete to be enforced, the employer is faced with the burden of proving that a specific harm will arise if it is not enforced. The burden cannot be discharged by speculation or prospective thinking.
- You have options: Agreeing to a Non-Compete does not mean it is set in stone. Similarly, a prospective employer may be agreeable to removing it from your employment contract. If you are faced with a current or future Non-Compete, it is imperative to speak with a competent employment lawyer to know your rights.
Author: Marc Kitay, Whitten & Lublin