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What is a non-competition agreement?

When an employee leaves a job, the former employer may have that employee sign a non-competition agreement. This agreement could cover things like trade secrets or restricting the former employee from setting up shop in the same area doing the same type of work. For example, let's say a doctor works for one medical group for ten years. She decides to leave and so the firm asks her to sign a noncompete clause saying she won't start a practice or take clients with her.

It's reasonable for the medical group to not want a former employee to take clients, just as it's reasonable for a tech company to protect its secrets. After all, losing either could mean going out of business. However, the needs of the company have to be balanced with the needs of the former employee to make a living.

For that reason, there are a number of legal conditions for a non-competition agreement:

  • Consideration. The company must provide the employee with something in exchange for signing the agreement. This could be additional benefits or a promotion if the employee is already hired or if it's before hiring, then the job itself could be thought of as consideration.
  • Protection. The agreement must protect a legitimate business interest, like privileged information.
  • Reasonable. It has to be reasonable regarding length and location. In our previous example, the medical group could stipulate that the doctor not set up shop in the neighborhood for a few years, but it couldn't tell her she can't open a business in another city.

Whether you're an employer or a former employee, if there's a dispute over a noncompete clause, you may want to speak with an attorney about it.

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