There are some common provisions in non-competition agreements that are necessary in all states that have implemented such agreements. All contractual provisions aimed at restricting competition must be written down. An oral contract between an employer and an employee, under which the employee has promised not to work for a competing company, is not applicable. As with any contract, there must be a “valuable consideration” to the non-competition agreement. The definition of what is sufficient to justify a valuable consideration differs according to the territorial schemes, but generally speaking, where non-competition clauses are part of the employment contract at the time of hiring, the hiring itself has been considered to be a sufficient consideration of a contract to prevent competition when the employment relationship ends. When a worker is subject to a non-competition agreement after the start of employment, the worker must be entitled to a payment or, at the very least, the promise of an increase or transportation in order for the agreement to be based on sufficient consideration. While an employer could argue that maintaining the job itself was sufficient and that the worker would have been fired if he had not signed the contract, these arguments are not favoured by the judicial arguments. As a general rule, courts do not attempt to apply such agreements to a large extent, as they may limit individuals` ability to earn a living. Nor will the courts apply agreements that are merely broad attempts to prevent competition. For this reason, non-competition obligations must be carefully developed to meet the non-competition requirements of individual states. You can legally restrict or, in some cases, prohibit competition with your business by using binding non-competition obligations. A non-compete agreement is essentially a contractual clause or a separate agreement itself that prevents one of your employees, consultants, agents or independent contractors from operating in competition with your company.
Non-competition prohibitions go beyond the non-demand of customers and limit the activities that the outgoing worker or contractor may perform or limit the outgoing worker to work for certain employers. A broad non-compete clause can totally prevent a worker from cooperating in any capacity with an employer that competes with your company in any area. Similarly, an overly broad non-competition regime may prevent an independent contractor from competing with your business indefinitely. In legal challenges, courts use a standard of proportionality to determine whether a non-competition agreement should be maintained. Most states use a three-part test: the agreement must be proportionate in terms of duration, geographic area size and enterprise need for agreement. Agreements that limit business sellers are generally less controlled, while restrictions on the behaviour of former employees are subject to close scrutiny. But broad and excessively heavy competition bans can and are often considered inappropriate by a court. Like non-invitation and other restrictive agreements, a restriction of competition, which essentially represents a considerable burden on the person to find or operate restricted activities, is generally not favoured. Courts dealing with restrictive agreements analyze the applicability of such agreements on a case-by-case basis. In analyzing the relevance of a provision, courts generally weigh three factors: (1) geographic area in which the potential use of trade secrets or client knowledge will pose a significant risk to the employer`s activities; 2. a period that legally protects the employer and does not impose unreasonable severity on the former worker; and (3) to limit competition in the specific nature of the activity in which the worker has carried out his activities.