Competing with a Non-Compete Clause

You've been asked by your new employer to sign an agreement with a non-compete clause. Or, your employer has just terminated you and wants to enforce a non-compete provision that you signed years ago. Before signing on the dotted line, here a few factors that you should consider.

By definition, a non-compete agreement, covenant, or clause is a contract not to compete in a profession, trade, or business in a specific market for a stated period of time.When an employee signs this type of clause as part of an employment contract, he or she agrees to abide by the terms stipulated, and not to compete with his or her employer upon termination or resignation. Although non-compete agreements restrain trade, courts will enforce them if they are reasonable and include provisions that:

  • Provide valuable consideration for the employee;
  • Protect the employer's legitimate business interest;
  • Are not overly broad in scope, including time and geographic location, or both;
  • Are not contrary to the public interest.

While there is no specific rule on non-compete provisions in employment agreements, in general, courts apply rules that the agreement must be fair, just, and reasonable with respect to scope, time, and territory. Whether a non-compete agreement is reasonable rests on the fact of the case and not on the law. To determine if a non-compete agreement is reasonable, courts typically will consider whether the agreement's provisions are:

  • Necessary to protect the employer's interest;
  • Oppressive for the employee;
  • Injurious to the interests of the public.

Courts want to preserve the rights of employers by protecting their trade secrets, client base and current employees from non-solicitation.Most issues with non-competes arise upon the termination of the employee's employment.In Massachusetts, most employment arrangements are "at will," and an employee's employment may be terminated by either party for any reason, so long as the action is not discriminatory.Courts, however, expect an implied covenant of good faith and fair dealing so that the parties deal with one another fairly and look to such standards when evaluating the differences of the parties.

There are certain defenses that employees can raise in attempting to prevent the enforcement of a non-compete provision. In addition to lack of consideration, defenses to non-compete contracts may include fraud, duress, improper execution, lack of capacity to contract, illegality, improper assignment, waiver and rescission

If you've been asked to sign a document with a non-compete provision in it, it's a good idea to have independent counsel take a look at it to determine if the restraint is customary within the business of the employer.If you have been asked to sign a separation or release agreement containing such a provision, it is also advisable to seek review by counsel.Waiting until after you have signed such documents may limit your recovery, should the issue become disputed. If you've already signed an agreement with a non-compete provision, review the agreement so that you know what you have signed.If you don't have a copy, request one from your Human Resources Department.You are legally entitled to review your personnel file and to make copies of all necessary documents.

This article is intended for informational purposes. Nothing in this article should be construed as legal advice or legal opinions regarding specific circumstances.

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