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Why do companies use non-compete agreements?

Non-compete agreements are fairly common, and many employees are asked to sign them when they take a job. "Asked" is perhaps putting it lightly. The employer tells them that they have to sign the agreement if they actually want to get the job.

The agreement essentially limits the person's options for a set time after they part ways with the company. It could be a year or five years, for instance. For that time, they cannot start their own practice or work for a direct rival.

In Florida, for example, this often happens in the medical industry. If you are a doctor and you take a job at a practice, they may tell you that you can't leave and immediately join another clinic in the same area for 12 months. You either have to wait until the 12 months are up or you have to physically relocate to a place where you would not compete with the first clinic anyway.

So, why do employers -- and not just clinics -- use these agreements?

Retaining employees

First of all, it can help to retain employees. An employee is less likely to quit if they know that it means working in a different field, waiting for a set period of time or moving to another part of the state -- or another state entirely. They may still quit, but it takes more for them to do it and they will not do it just because of a job offer from the competition.

Protecting intellectual property

One of the big worries that employers have is that employees will take key intellectual property -- recipes, processes, lists of clients, inventions, ideas, etc. -- with them when they go. The employees can then use this information to negotiate for a job with the competition. The non-compete agreement stops them.

Preventing direct competition

Another issue is if someone just uses the job for experience so that they can learn how to compete with it. For instance, maybe a doctor wants to start their own clinic, and they just take a job at a nearby clinic to learn the ropes. When they have learned enough, they want to quit and open a place of their own, hopefully poaching clients. The first clinic does not want to become a training ground for their direct competition, and the non-compete agreement means they will not.

What now?

So, what if someone wants to violate a non-compete agreement? It's important for both sides to understand exactly what the agreement means, whether or not it can be broken and what legal rights and obligations they have.

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