Validity and Enforceability of Non-Compete Agreements

Employers use non-compete agreements often to protect trade secrets and keep valuable employees from moving to competing firms. Most employers who conduct business involving highly valuable business secrets require employees to sign non-compete agreements before commencing employment. These contracts prohibit employees from releasing trade secrets to competing companies. Additionally, non-compete agreements prevent employees from working for a direct competitor within a period of time after leaving the company.

In light of the emphasis that the legal system places on an individual’s right to earn a living, courts require a high level of reasonableness to uphold non-compete agreements. Courts generally look at the length of time, geographic area, and types of business that these contracts cover to determine whether they place an undue hardship on an employee’s ability to seek employment. In states that allow for non-compete agreements, courts require reasonable scope and duration in order to uphold such contracts. Furthermore, non-compete agreements may be valid regardless of whether an employee leaves of his own choosing or is terminated.

California’s policy regarding non-compete agreements emphasizes a strong public interest in open competition. The California Business and Professions Code ยง 16600 dictates that any contract that restricts business is “void” unless the agreement falls within the exception outlined in Business and Professions Code Section 16601. The exception looks to whether competition would dispose of a substantial ownership interest or goodwill of the company. However, California employers maintain the option of using non-solicitation agreements and non-disclosure agreements to protect trade secrets and employees from competitors. Non-solicitation agreements prevent employees from seeking out the company’s clients after leaving, unless the employee developed a relationship with the client before working for the company. Nondisclosure agreements are contracts that hold the parties responsible for protecting confidential information utilized in the course of employment or during a business transaction.

In Washington D.C., while there is no specific statute that governs non-compete agreements, the entirety of its laws governing business operations void any contract that unreasonably restrains business. However, courts may enforce non-compete agreements that are limited in scope, in line with public policy, and reasonable in light of the circumstances. Washington D.C. seeks to balance the employer’s business interest with hardship on the employee if the agreement is enforced. An employer that is successfully able to enforce a non-compete agreement may seek an injunction to stop the employee from releasing further trade secrets or from continuing to work for a competitor. Additionally, the employer may seek damages sustained as a result of the employer’s violation of the contract. However, Washington D.C. places the burden of proof on employers to prove that the agreement at issue does not restrain trade beyond the acceptable limits.

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