Labor Laws

Covenant not to Compete

A covenant not to compete (CNC), or non-compete clause, takes place when an individual decides to pursue another direction in which they are in competition with a former employer as opposed to working for them. A CNC is bound by conventional contract constraints, including the consideration doctrine. The use of such a clause is based on the suggestion that when an employee is fired or resigns, that person can either work for a rival or start up their own company and garner a competitive advantage by utilizing classified information about the former employer's operations. This includes sought after items like customer listings, business practices, soon-to-be released products, and marketing strategies.

At the same time, a business might use the non-compete clause to keep an employee from working anywhere else. Most courts have ruled these contracts to be legally binding as long as the clause puts realistic restrictions on the geographic region and time period to which an ex-employee is not allowed to compete. The courts have made it clear that a person cannot be banned from practicing a trade that he or she has been taught as long as it does not bring down the former employer's business.