Basics of Non-Compete Law

In service-based and high technology industries, non-compete clauses have become commonplace. Non-compete clauses are intended to protect an employer’s legitimate business interests. These interests often include the theft or use of trade secrets, the theft or use of customer lists, or the use of information for a competitive advantage. Employers are often concerned that their employees will leave their companies and then use the information that they gained in their employment to start a company without having to undertake all of the capital and time outlay that the employer was required to put into his or her company. Thus, these clauses are often implemented to protect against competitive shortcuts.

In most states, non-compete clauses must be:

1. Reasonable as to time and geographic scope;
2. Necessary to enforce a legitimate business interest; and
3. Narrowly tailored to protect that legitimate business interest

Some states, finding that non-compete clauses reduce competition, have enacted wide-reaching prohibitions on the clauses. California, for example, prohibits the enforcement of non-compete clauses except for in specifically enumerated areas, such as in the sale or dissolution of a business.

Since non-compete issues are very fact-based and, if not properly examined, can lead to litigation, it is important that you contact an attorney if you believe that you are faced with a non-compete or non-solicitation related issue.