A non-competition clause is a portion or term of an employment contract which prohibits an employee from interacting in a way that competes with the present employer. These clauses may prevent employees or workers from providing services in a certain market or from giving businesses to certain clients. The ultimate purpose of non-competition clause is to to protect the integrity of an organization or corporation.

Often this means protection of a company’s interests or proprietary information. The clause will include terms involving protection of a company’s trade secrets, marketing plans, business practices, contacts, sales strategies or other important business information which the employer desires to keep confidential from competition.

Generally, state law governs employment contracts and the enforceability of non-competition clauses. This enforceability varies from state to state, but most states will only enforce a non-competition clause which is necessary to protect the employer. Overly broad non-competition clauses are usually deemed against public policy since they could potentially prevent an employee from finding work elsewhere.

Legally Allowed Non-Competition Clauses

Legally allowed non-competition clause have specific limitations to prevent public policy violations. They must limit the scope of the clause to a specific geographic area. Additionally, they must set a specific time period to which the terms of the cause apply. For instance, an employee may be asked to refrain from working with all similar companies in the Atlantic region of the United States for a period of 5 years.

State Law on Non-Competition Clauses

Some states such as California do not allow non-competition clauses except in certain very specific circumstances. Other states will allow non-competition agreements, but only if the scope is sufficiently narrow. For instance, in Virginia, the agreement must be reasonable in that it covers only what is necessary for legitimate business interests, is not unduly harsh or restrictive and does not offend public policy.

In Florida, where non-competition clauses and agreements are quite common, courts are more likely to uphold and enforce them. In Texas, non-competition agreements and clauses are allowed when reasonable and not unduly restrictive, but the state makes special exceptions for some workers and professions such as physicians.

Issues Arising from Non-Competition Clauses

One of the main issues that can arise with non-competition agreements is litigation against an employee accused of violating the terms. If a non-competition agreement is in place, an employee is bound by its terms after leaving a particular job and must abide by them for the number years specified. Sometimes, this severely limits an employee’s alternatives. However, there are a few ways that non-competition clauses can be rendered invalid and thus non-enforceable.

A non-competition clause may be invalid if it is a part of an employment contract that has been breached by an employer. Additionally, since many states base the validity of non-competition clauses on relation to legitimate business interests, an employee may be able to show that the clause is invalid because it goes beyond the scope of necessity. Also, when a non-competition is too broad in scope it could be deemed a violation of public policy and thus unenforceable by a court of law.