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One of the more difficult agreements companies have to deal with is the non-competition clause, simply because the document must strike the right balance between protection and freedom. The non-compete obligation is a written agreement in which one party, usually a departing employee or partner, undertakes not to be in the same field or profession as the second party for a given period of time and within a given period, as a rule Company or partnership to compete in a specific geographical area. As a rule, a company concludes a non-competition clause between itself and one of its employees. This can happen when the employee is recruited (and the “agreement” may actually be a clause in the employment contract); or it may occur upon termination of the employee’s business with the company, either in a formal agreement or as a clause in a separation agreement.
In the case of non-competition, consideration plays an important but overlooked role. The employee agrees not to compete with his former employer in the area in which he is alleged to have some valuable knowledge. In order for the employee to give up this right for a short time, the company must offer something valuable in return. The promise of a job may be enough (for the hiring), as well as the continued employment or the prospect of a salary increase (for the existing employee).
Meanwhile, the company also needs to be protected. The purpose of the non-competition clause is to protect the confidential business information or trade secrets of a company. The courts have stated that a certain amount of protection is required, albeit at the expense of the dismissed workers. The key is rationality. Businesses can protect their legitimate business interests. A non-competition clause that denies the worker the right to work anywhere in the state or country, or for a period of time that goes on for years, is therefore likely to be abolished. At the same time, it should not be forgotten that some companies have secrets that justify a large non-competition clause.
Many state courts – and the law differs from state to state in this area of law – will override overriding non-competition clauses in their entirety. Other “blue line”, which removes only the invalid parts. California leads the way in banning non-competition, with the exception of selling a business. In this case, the new business owner should not be deprived of the company’s existing goodwill.
Another aspect to consider is how the employee left the company. If released without fault or fault, it may be less likely that a court will enforce a non-competition clause, in particular a highly restrictive one. Conversely, if it has terminated or has been terminated for good cause, the balance will be paid in favor of the company.
Sometimes companies understand that the agreement they are making with one of their employees is unlikely to be enforced. For these organizations, it suffices if the employee is intimidated and worried about ever leaving the company.
Overall, the non-competition clause is a valuable tool for companies. However, for this to be most useful, the authors of the report must strike the right balance between the legitimate interests of the company and the worker’s right to work.