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Can your business use a non-compete agreement?

On Behalf of | May 26, 2023 | Employment Law

A non-compete agreement helps to define what employees can and cannot do when they leave your company. Generally, this type of agreement keeps someone from starting a competing business or joining the local competition. It’s designed to help a business owner protect their trade secrets and keep from simply training the competition themselves.

In some states, these agreements are not permissible. In California, for example, a non-compete agreement is not going to stand. But they can still be used in a number of other states. There are simply some restrictions you’ll need to be aware of and certain workers who cannot be bound by a noncompete if your company operates in a “non-compete friendly” state.

4 situations that non-competes can’t govern

It’s important to understand that there are four specific types of situations that non-compete agreements can’t govern. Even if an employee agrees to it and signs a document when taking the job, it’s not going to stand up in court. These are as follows:

  1. Low-wage employees
  2. Non-exempt employees covered under the Fair Labor Standards Act
  3. Employees who are 18 years old or younger
  4. Students who are engaged in short-term employment while attending college, such as an intern

Essentially, the law is written so that an agreement doesn’t unfairly impact certain workers. For example, a college intern can’t be bound by a non-compete agreement because they are simply working at a business in order to gain experience. The whole point, for them, is to get experience and use it to get a job somewhere else after they graduate. A non-compete agreement would make that impossible, so it cannot be enforced.

With low-wage employees, the issue is generally just that a non-compete agreement could be used to help suppress their wages. By making it so that they cannot be restricted in this way, employers still have to compete with one another for these positions. A non-compete agreement is seen as too restrictive for someone who is not compensated reasonably.

It is, therefore, important to seek legal guidance before committing to a non-compete arrangement, as one may not be enforceable if it isn’t approached in specific ways.