Non-Compete Clauses

non-competeA Non-compete clause limits the employment of the employee after termination for a specific amount of time in a given area and field of expertise. Its purpose is typically to: (1) protect trade secrets, and (2) limit employees who possess the knowledge and skills in the given area.

(1) Trade secrets are limited by a non-disclosure agreement, which contains a list of particular secrets of the trade. It may also contain sales strategies and client lists. (2) Employment limitation is focused on the market niche and geographic area, usually for up to three years. Overbroad limitations will be stricken and deemed unenforceable, especially where they are overly restrictive.

A provision should be included, which clearly states that “in the absence of any provision thereof deemed unenforceable,” the remaining portion of the Agreement shall be enforced.

What is more, non-compete agreements must involve some give-and-take (consideration). If a non-compete is signed only after the employment began, without any extra payment or advantage to the party, the proffering party (employer) is running the risk of the clause being stricken by the court (for lack of consideration). The employer is traditionally the drafter of the non-compete, thus bears the burden of proof that any restriction is reasonable and necessary to protect against unfair competition.

In California, the employer must show that the non-compete agreement actually concerns proprietary information (objectively understood, not merely because the employer says so). If this information, be it client lists or sales tactics or pure data, can be obtained by some other means (e.g. internet search), the non-compete will be deemed invalid.

Finally, the employer may not force the employee to sign a non-compete under threat of termination. Such a forced clause would be held unconscionable and invalid, and the employer would be liable to the employee for damages in a wrongful termination action.

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