What Makes a Non-compete Agreement Valid?

In certain industries in Washington, D.C. and elsewhere, it may be necessary to include certain terms or agreements when hiring a new employee. In order for the employee-employer relationship to begin, some employers require that a new employee enter into a non-compete agreement. These are typically used to protect trade secrets of the business or the overall goodwill of the business itself.

Requirements for A Non-Compete Agreement

In order to form a valid non-compete agreement, three things must occur. First, the agreement must be supported by consideration at the time of its signing. Second, it must be used to protect a legitimate interest of the employer. Finally, it must be reasonable when it comes to the scope of the agreement, geography and the timeframe of it.

With regards to consideration, this means that the employee must receive something of value in exchange for their promise to not compete with the employer once their employment ends. For example, if the signing of the agreement occurs before employment, then employment itself will be sufficient enough as consideration. However, if it is signed after employment begins, continued employment is not considered valid consideration. In this case, a promotion or additional benefits not included in the original employment agreement would be sufficient consideration.

What Is Considered Reasonable?

When determining if a non-compete agreement is reasonable, there needs to be a balance when it comes to the employer’s legitimate business interests and the burdens placed on the employee by enforcing the agreement. Reasonableness considers the scope of the agreement as well as its duration. These can vary case by case; however, this should not prevent the employee from making a reasonable living.

If the agreement is used to protect confidential information, the duration should not be longer than the time the information holds value. The geographical are covered by the agreement must also be reasonable given the circumstances of the matter. Generally, a court would not allow for a non-compete agreement that would prevent an employee from working in a geographical area where the employer does not do business.

Employment contracts can detail many requirements for an employee; even signaling what an employee can or cannot do when employment is terminated. When these terms seem overbroad and constraining, this could limit the ability of the employee to make a living after ending the employee-employer relationship. Therefore, it is essential to understand the terms of these agreements before signing them and taking action if they are not operating as intended.