Noncompete agreements are employment restrictions that prohibit employees from working for or starting a competitor business within a particular time period after leaving their current position. Given that changing employment is a common way for workers to earn a raise, it’s easy to understand how non-compete agreement could be contributing to low pay growth. Non-compete agreement also hinder people’s ability to establish firms or change employment, so it’s easy to see how they might be contributing to the labor market’s lack of dynamism. But how widespread are they? The degree of noncompete usage is investigated in this research using data from a national survey of private-sector American business establishments. 

Nearly half of responding establishments (49.4%) said at least some of their employees were compelled to sign a noncompete agreement. Nearly a third of answering businesses (31.8 percent) said that all employees, regardless of income or job responsibilities, were forced to sign a noncompete agreement. The degree of noncompete use discovered in this survey is significantly higher than the 18.1 percent of workers protected by noncompete agreements observed in a high-quality 2014 poll. The disparity is most likely due to the fact that the polls were conducted three years apart, implying that the use of non-compete agreements are increasing. It’s also probably due to the fact that ours was a study of businesses, whereas the previous one was a survey of workers in the private sector or in a public health-care system. 

Despite the fact that noncompete agreements are invalid under California law, they are prevalent across the country, including in California. Despite the fact that these agreements would be unenforceable in California courts, firms can nevertheless utilize them to compel employees to not work for competitors. A non-compete agreement is meant to keep two parties from competing against each other, usually an employee and an employer. For a set amount of time, the employee is prohibited from working for or becoming a rival under the terms of the agreement. The non-compete agreement also prohibits the party (in this case, the employee) from working for a competitor in the same market or beginning a similar business. Do you want to know more about a non-compete agreement? Are you looking for a printable template that you can use as your own? Scroll down below to know more about his and to download our free templates that you can use anytime!

What Is a Non-Compete Agreement? 

A non-compete agreement is a legal agreement or language in a contract that states that when an employee’s job period has ended, he or she shall not compete with the employer. During or after employment, the employee is also prohibited from disclosing private information or secrets to any other party.

Many contracts stipulate that after an employee’s employment ends, they are prohibited from working for a competitor for a particular period of time. Non-compete agreements may be required by employers in order for employees to keep their jobs. Employees, contractors, and consultants may be compelled to sign these agreements. Non-compete agreements are written when the employer-employee relationship begins. They allow the employer influence over the employee’s precise behaviors, even after the relationship has ended.

These contracts have specific language saying that the employee will not work for a competitor when their employment ends, whether they are fired or resign. Employees are also barred from working for a competitor, even if the new position does not require them to reveal trade secrets. The length of time the employee is bound by the non-compete agreement, the geographic region, and/or the market are all possible contract provisions. These agreements are also known as “non-competition agreements” or “restrictive covenants.” Non-competition agreements guarantee that an employee will not use information gained while employed to establish a business and compete with the employer once the job is finished. It also ensures that the employer maintains its market position.

Common Elements Of a Non-Compete Agreement 

Because non-compete agreements are tailored to each employer, they might differ dramatically from one to the next. However, the following are common elements of such agreements: 

Duration – A non-compete agreement normally lasts between six months and two years (or less). An employer can only set realistic timeframes and cannot prevent an individual from progressing in their career indefinitely. Non-compete agreements that last a long time are rarely upheld in court.  Scope – The employer must specify the work or activities that the employee is prohibited from performing. This eliminates ambiguity when it comes to applying the provision, and it ensures that the employee understands what they can and cannot do to avoid breaking the law.  Geography – Geography refers to the local area or region in which the company operates and where an employee should not start a direct or indirect competitive business.  Compensation – The form of remuneration that the employer shall get if the employee violates the non-compete agreement should be specified in the non-compete agreement.  Competition – When a non-compete agreement prohibits an employee from working for particular competitors, the agreement must specify the types of firms or industries with which the employer competes.  Leave clause – Commonly known as the garden leaves clause, is included in the agreement. According to it, the employer is obligated to pay the employees’ salary throughout the duration of the agreement. However, most such agreements do not include a clause providing for salary to be paid after the contract has been terminated.  Unilateral Commitment – Non-compete agreements have a unilateral obligation. These are agreements in which one party discloses secret information to the other. As a result, the other person is responsible for keeping the promise. In this instance, the employees are responsible for adhering to the agreement.  The Exception Provision – Like other legal agreements, a non-compete agreement includes an exception clause. This necessitates the employee’s violation of contract in some extraordinary circumstances. The employee would not be charged with breaching the agreement in that situation.  Clause of Compensation – The compensation clause kicks in if the second party, in this case an employee, willfully breaches the agreement. It requires the employee to compensate the employer for the breach of contract that caused the employee’s business to suffer damage. 

How To Create a Non-Compete Agreement? 

A non-compete agreement is a contract between an employer and an employee that prohibits them from competing with each other. In this form of legal agreement, the employee undertakes not to compete with the employer while they are employed or after they leave. Employees are prohibited from entering professions or marketplaces that the employer views to be in direct rivalry with their firm under non-competition agreements. Are you planning to create this type of agreement for your business or company? Know more about creating this below. 

1. Examine your rivals.

Find out what types of companies are in direct competition with yours. Competitors are companies who provide similar goods or services to you, often in the same geographic area. You must be aware of any potential conflicts of interest among your staff. In this way you get to learn more about your competitors and you can draft your own non-compete agreement in a way that you are sure that your employees won’t go against your company.

2. Make a written agreement.

You can either draft your own agreement or utilize a non-compete agreement template like ours. In either case, your agreement should be tailored to your company’s specific needs. You may consult with your HR, company lawyer or look over the internet for more printable templates like ours and you are good to go to create your own agreement for the company.

3. Have a legal professional go through your contract.

When creating legal documents, it is critical to get the opinion of a lawyer or legal representative. Request that a lawyer review your contract for any possible omissions or faults. Don’t believe your non-compete agreement is watertight just because you used a free non-compete agreement template. Consulting with a legal professional or a lawyer can save you from more possible problems in the future, there may be possibilities wherein your agreement has some loopholes and can be used by your employee against your company. In this way you are 100% sure that the agreement that you have signed and your employee signed are safe and free from any legal complaints. 

4. Give your employee the non-compete agreement.

The employee should be given the opportunity to ask questions at this stage. Reading the document with them is the finest thing to do. It is very vital that you explain the non-compete agreement to your employee before you let them sign it, give them a few days to understand and to ensure that they are okay with the terms and conditions stated in the agreement. Assure also your employees that if they are not okay with the agreement, they have the freedom to decline it and leave the company with no hard feelings. Or, in better terms, you can tailor fit the agreement to your employee where their demands and your demands will meet so that you can have a smooth agreement. 

5. Sign and date the agreement when everyone is pleased.

If the employee and the employer have come to an agreement, both parties can sign the non-compete agreement as long as everyone believes the terms are fair. Keep a copy for your records and give a copy to your employee for their records. Once the agreement is signed and considered as official, it is vital to keep the document safe, so that if there are problems in the future that will be involved with the non-compete agreement, you have proof that the agreement was taken into account. 


How long can a non-compete be used?

Non-compete agreements are governed by state legislation, and the length of time must be deemed “fair” by the courts. Non-compete agreements could last two or three years, but the length is up to the corporation, and the courts will decide if they are enforceable.

What Is the Best Way to Negotiate a Non-Compete Agreement?

As part of your employment terms, you may be requested to sign a non-compete agreement when you are offered a position. If you want to negotiate it, you should seek the advice of an employment lawyer. Another option to open the door to negotiating your agreement is to speak with the company’s human resource management about your issues.

Is it Possible to Enforce Non-Compete Agreements?

Despite the widespread use of non-compete agreements by employers, there remains debate about whether non-compete litigation would hold up in court. Some courts have previously determined that such agreements are unjust to employees because they limit their opportunities for promotion. A non-compete clause must be reasonable and fair to the employee, as well as specific in its restrictions, for the court to enforce it. The employer may gain an advantage in enforcing the agreement if it covers a short period of time, such as six months to one year, and a relatively small geographical area. However, the wider the non-compete agreement, the less likely it is to be enforced by the court. A non-compete agreement is unenforceable against employees in several states (for example, California). Such agreements are automatically null and void, with the exception of a few exceptions allowed by law. Businesses operating under the state’s authority have a great interest in being able to hire people from both within and beyond the state. In Hawaii, a new law enacted in 2015 prevents high-tech employers from requiring employees to sign non-compete and non-solicit agreements as a condition of employment.

What Happens If You Infringe on a Non-Compete Agreement?

In theory, if you break a non-compete clause, you could be sued. The enforceability (or not) of non-compete agreements is determined by state law (which varies by state).

Is it Possible to Get Rid of a Non-Compete Agreement?

Perhaps, but it may necessitate going to court. If you’re thinking about seeking to get out of a non-compete agreement, you should speak with an attorney first.

It may not always be in your best interest to sign a non-compete agreement, but it is almost always in the best interest of your potential employer. Before you sign anything, consult with an employment attorney and consider the likelihood that if you leave your job, you would have a difficult time obtaining work in your field. Although not all states enforce non-compete agreements, some do, so it’s worth knowing how a non-compete agreement will play out if you quit your job or break it.