it really depends on what state the company is operating in. There are no federal law prohibiting companies from including a one-year noncompete for all new contracts. However, some states either completely ban or limit the applicability of noncompete agreements. Therefore, while a company may include noncompete language in a contract, it may not be enforceable.
Noncompete agreements are an important tool to use to protect business interests. Noncompete clauses prevent former employees from joining a competitor, and typically apply for one to two years. Often, employers include them in contracts to protect trade secrets, customer relationships, goodwill or specialized training. Nonetheless, while there are strong reasons for an employer to include noncompete language in a contract, they are one of the most difficult types of restrictive covenants (agreements that limit activity) to enforce in an employment contract. Generally, in order to be enforceable, a noncompete clause must:
- be supported by consideration
- protect a legitimate business interest
- be reasonable in scope, duration and geography.
In general, states agree on the definition of consideration (money, stocks or offers of employment), and similarly agree that concerns such as protecting trade secrets, customer goodwill or workforce stability qualify as legitimate business interests. Yet, states differ widely on what they consider to be a
reasonable noncompete clause, with some states fully banning noncompetes all together. In order for your business leaders to be able to enforce their noncompete clause, it will depend on what state the employee is working in.
