29 Jun The 3 requirements for a valid non-competition clause
California employees are often asked to sign non-competition agreements when they start working for a new company. A potential employee desperate for a job is often willing to sign just about anything in order to get a weekly paycheck. However, these non-competition agreements can be problematic for some employees who later decide to leave their companies.
In fact, it’s not unheard of for an employee to leave a company and then worry about his or her future ability to work in the same field and earn a living. Fortunately, courts tend to frown upon non-competition clauses that interfere with someone’s ability to earn a living in his or her chosen field, so a non-compete that has this effect might be ruled unenforceable by a California court.
What is required for a non-competition clause to be enforceable
Many non-competition agreements, however, will be enforceable. Here are the three requirements that courts generally look for to establish that a non-competition clause is enforceable:
The employee needs to have received something of value in exchange for signing the non-competition clause: Receiving something of value in exchange is referred to as “valid consideration.” If no valid consideration existed to support the non-competition agreement, then it’s probably not valid. For new employees, the valid consideration could simply be the right to a new job and the salary that goes with it. For existing employees, it might be a promotion or increased benefits. Simply allowing the employee to keep his or her job in exchange for entering into a non-competition agreement is not sufficient.
The agreement must be reasonable in terms of time, geography and scope: Many non-competition agreements are invalid because they ask an employee to endure an unreasonable period of time in which he or she is not allowed to work in the industry. Or, the non-compete might cover too large of a space, essentially prohibiting the employee from working in the field anywhere in the country, or that it prohibits the employee from doing too many types of activities.
The non-competition agreement must protect a legitimate business interest: A non-competition agreement can only protect the legitimate interests of the employer. As such, if the non-compete is too broad in its protections, a court could render it invalid.
Is your non-competition agreement invalid?
If you signed a legally invalid non-competition agreement, it might not be your responsibility to adhere to it after leaving your employment. However, before you take any action against a non-competition agreement, it’s vital that you fully understand all of the legal issues at play.