Released: January 21, 2019

Help Desk FAQ

Are non-compete clauses, or agreements, legal?

A non-compete clause or agreement is designed to prevent a departing employee who has signed such a contract from sharing company secrets (such as a recipe, formula, technique or customer list) with competitors. It can also prohibit “key” employees (those with specialized knowledge or skills) from going to work for competitors or even starting their own business and competing with their old employer.

Whether a non-compete agreement is legal depends on where you live; the laws vary from state to state. In some states, including California, a non-compete agreement is unlikely to be enforceable in terms of keeping you from competing with your ex-employer. However, a confidentiality or non-disclosure agreement that prohibits you from sharing company secrets would be enforceable.

In other states, a non-compete agreement could be enforceable if it is:

• Reasonable (not overly restrictive)
• Agreed to by you in exchange for something from the employer (such as a job, promotion or bonus)
• Limited in length (prohibiting you from competing for six months, for example, but not forever)
• Limited in physical distance (prohibiting you from competing within the state, for example, but not the entire U.S.)

If you fight the contract in court, some states allow a judge to change the terms of a non-compete agreement if it is too restrictive on your ability to find work. Other states require the judge to enforce the contract or declare it invalid, and nothing in between. If you are found guilty of breach of contract (breaking your non-compete agreement), you, and possibly your new employer, could be sued and have to pay damages.

If you want to learn more about your obligations and rights related to a non-compete agreement, contact a labor and employment attorney in your state. You can also learn more by doing an online search for “non-compete agreement” plus your state’s name.