Most employers forbid employees from competing with the company while they are on the job. But some employers go further, requiring employees to agree not to start their own businesses or go to work for a competitor after they leave their jobs with the company. These employers require their employees to sign agreements that say something like “I promise not to compete with the company after I quit or get fired” for a specified period of time. These contracts are called “Covenants Not To Compete” or “Non-Compete Agreements”.
Are non-compete agreements legal?
It depends on the state you are in and what the agreement says.
In some states, non-compete agreements are invalid – because those states do not want to prevent their citizens from working for anyone they choose or from opening their own businesses.
Other states allow non-compete agreements, because those states agree with employers who want to protect their businesses from competition from former employees. But even in these states, if the non-compete agreement stops you from competing at all, it will probably not be enforceable, because it is unreasonable. For example, if a salesperson has an agreement that says she can never compete with her former employer in any location in the United States, it might be invalid. On the other hand, if the non-compete agreement says that the worker cannot complete with her former employer in the same neighborhood for six months after the job ends, then that would more likely be valid. The bottom line: the less the contract restricts you, the more likely it is to be legal. If you are not sure whether your non-compete agreement is valid, you should check with a lawyer (an employment attorney) who specializes in employment law.
Breaching a non-compete agreement
If you have signed a non-compete agreement and you do not want to comply with it, you should contact an attorney who specializes in employment law (an employment lawyer) to find out if the contract is valid in your state.
If you violate a valid agreement, you employer (or, actually, your “ex-employer”) can probably sue you and recover the money that it lost because you breached the contract not to compete. It might also be able to stop you from operating your new business or going to work for a competitor. If your ex-employer has sued you, you should contact a lawyer immediately.