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What are the limitations of a noncompetition clause?

| Aug 7, 2018 | Employment Contracts |

It’s common for employment agreements to contain a noncompetition clause. Many employers expose trade secrets and client lists to employees and they don’t want their employees using this confidential information to compete against them unfairly. As long as noncompete clauses are reasonable, courts will often require employees to adhere to them. However, clear limitations apply to these agreements and an employee subjected to an unreasonable noncompetition clause may not have to follow it.

In order for a court to enforce a noncompetition clause, the following must be true:

The employee received something of value

If it was an existing employee who was later asked to sign a noncompete, that employee needs to have received something of value, such as a raise or promotion, in exchange for signing the document. If it’s a new employee, then the benefit of being hired into a new job could qualify as the benefit received. Employers cannot force an existing employee to sign such a document without giving valid consideration in exchange.

The noncompete must protect a legitimate business interest

The noncompete agreement needs to serve an actual purpose. If it’s not clear what the employer needs to protect, then the noncompete doesn’t actually serve a purpose and court might rule that it’s an invalid document.

The agreement must be reasonable

The reasonableness of the noncompete agreement applies to scope, time and geography. Often, in exchange for signing a noncompete agreement, individuals are provided with reasonable compensation packages in the event of an unplanned termination or layoff. This compensation package will allow the employee to make financial ends meet while not working in violation of the agreement. Courts will generally frown upon noncompete agreements that leave an employee destitute and no longer able to work in his or her industry. Courts will also throw out noncompete agreements that cover an unreasonable period of time and too large an area geographically.

Are you unsure about the validity of your noncompete agreement? Make sure you study as much as you can about California employment law as it applies to the specific noncompetition clause that applies to you.

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