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What are the limits of a noncompete agreement?

| Nov 27, 2020 | Employment Law |

Employees considering a new job, a promotion or even a severance agreement often find themselves facing a conundrum: Should they sign a noncompete agreement? These agreements are commonplace in various industries and lines of work. And they’re not limited to executives, salespeople and other high-ranking employees with specialized knowledge. Employees (and prospective employees) at any level may feel pressured to sign them.

However, given the important rights you may be giving up, you should only do so after careful thought – and consultation with an independent employment attorney.

Understanding what they are

Noncompetes are a type of contract that restricts your ability to earn a living in your chosen line of work. They operate as a restraint on trade, meaning they limit employees’ freedom to do business and, to some extent, undermine the foundations of a free-market economy. By their very nature, they restrict competition. As a result, noncompetes typically aren’t enforceable unless they adhere to strict legal requirements.

The reasonableness requirement

While the specifics vary from state to state, the overarching standard is reasonableness. Noncompete agreements must be reasonable in:

  • Geographic reach: They must be limited to a specific radius or sales territory. In either case, the geographic scope must be reasonably narrow and well-defined.
  • Duration: Noncompete agreements can’t be perpetual. There must be a reasonable end date for lifting the restrictions. Some states set a hard limit – for example, five years – but even then, the duration must be reasonable with regard to each contract.
  • Type of work: No agreement can completely prevent you from earning a living. It must be tailored to your industry and line of work.

Each of these elements depends on the nature of the work, the industry and the specifics of the situation. What’s reasonable in one circumstance might not be reasonable in another.

Additional considerations

Some states impose further restrictions. Under Illinois’ Freedom to Work Act, for example, noncompetes aren’t enforceable for low-wage workers. Additionally, noncompete agreements aren’t allowed in certain lines of work.

Because noncompetes are so case-specific, it’s important to talk to a lawyer about your situation and how it fits into the legal framework in your state.