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What makes a noncompete agreement valid?

Whether you're an employer looking for new hires or a worker considering new employment opportunities, it's important to have a general understanding of current state and federal employment laws. These laws often change, and if you sign any type of agreement without fully understanding its contents and any obligations or responsibilities set therein, you could wind up facing significant legal trouble if something goes awry down the line.

For instance, these days many employers use noncompete agreements, which are designed to protect employers' interests, particularly with regard to intellectual property and trade secrets. For a noncompete clause to be valid, several requirements must be met.

It's a give-and-take arrangement.

Noncompete agreements are not meant to be one-sided, meaning favorable to only one party entering the contract. The following list explains the two-way issues typically involved and also what issues make such contracts legally enforceable:

  • While many employers ask prospective employees to sign noncompete agreements, there are also times when employers may request the same of existing employees.
  • In either case, adequate consideration must exist for such an agreement to be valid. This means that a potential worker or current employee must receive something of value for his or her willingness to sign the contract.
  • When possible new hires are concerned, the promise of a new job may be sufficient to render a noncompete clause valid.
  • However, if you're already on the payroll, your employer would need to offer you some other form of compensation, such as a raise in pay or a promotion, in exchange for your signature on a noncompete clause.
  • The scope, time and geographical distance must be reasonable. In other words, a noncompete agreement must be reasonable in how it defines competitors; must be reasonable in duration (usually two or three years); and must be reasonable in geographic reach (typically limited to areas where the employer does business).
  • An employer must also be trying to protect a valid interest when asking future workers or existing employees to sign noncompete contracts.

One of the things an employer may seek to protect when asking workers to sign noncompete agreements is confidential information. Such information would typically be that which gives the employer an advantage over competitors. If you're unsure of whether you have legitimate reason to ask employees to sign a non-compete clause, or if you are seeking employment yourself and are facing such a request from your prospective employer, you may want to seek guidance from an experienced employment and business law attorney.

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