Businesses can benefit greatly from using non-compete agreements. These types of agreements prevent employees from leaving their employer to work for a competitor or forming their own business and taking a company’s customers with them.
There are a few things that may make a non-compete agreement unenforceable. Here are a couple of the most common reasons why an agreement may be invalid.
Lack of consideration
All types of contracts must have some form of consideration. In general, consideration is what one party gets for agreeing to something. If a non-compete agreement identifies something such as special training or an interest in a company as consideration but the party bound by the agreement did not actually receive what it described, he or she may have grounds to challenge enforcement.
Typically, non-compete agreements must not be too broad in how they attempt to restrict another person’s activities. For example, an agreement that does not limit a person from competing with a business within a specific geographic area may be overly broad. Likewise, an agreement that prevents a person from working for another business indefinitely rather than during a set timeframe may not be enforceable.
Ultimately, non-compete agreements should serve the goal of protecting businesses’ interests against the loss of trade secrets or losing customers. They are not meant to create unreasonable restraints on trade and commerce or facilitate monopolies within a particular industry. Businesses should use discretion when deciding what types of non-compete agreements to use, and employees should be sure that they fully understand the terms of a non-compete before agreeing to it.