Non-competes

Extracted Attributes

• Legal Status

  Varies significantly by jurisdiction; some localities/states ban or highly restrict them

• Primary Purpose

  Prevent employees from entering into or starting a similar profession or trade in competition against a former employer

• Alternative Names

  Restrictive covenant, Covenant not to compete (CNC)

• FTC Ban Exception

  Non-competes for the bona fide sale of a business entity

• Historical Origin

  Medieval apprenticeship system

• Modern Justification

  Preventing high-skilled workers from transferring trade secrets or customer lists

• Scope of Application

  Often applies to low-wage workers, not just high-skilled

• Impact on Labor Markets

  Reduces competitiveness, lowers wages, reduces labor mobility

• Estimated Affected Workers (US)

  30 million

• Enforceability Criteria (General)

  Reasonableness of geographic area, time period, protectable business interest, no undue hardship on employee, no harm to public

• Impact on Innovation/Productivity

  May reduce innovation and productivity

• Impact on Product/Service Markets

  Inhibits new business formation and innovation, leads to increased market concentration, higher prices for consumers

• Estimated New Startups if Banned (US)

  More than 8,500 per year

Timeline

• Non-compete agreements are rooted in the medieval system of apprenticeship, where apprentices agreed not to compete with their master after training. (Source: Wikipedia)

  Medieval era

• The Federal Trade Commission (FTC) announces a final rule banning most employee non-competes, with Chair Lina Khan stating it will ensure Americans have the freedom to pursue new jobs and ideas. (Source: Web Search Results)

  2024-04

Non-compete clause

In contract law, a non-compete clause (often NCC), restrictive covenant, or covenant not to compete (CNC), is a clause under which one party (usually an employee) agrees not to enter into or start a similar profession or trade in competition against another party (usually the employer). In the labor market, these agreements prevent workers from freely moving across employers, and weaken the bargaining leverage of workers. Non-compete agreements are rooted in the medieval system of apprenticeship whereby an older master craftsman took on a younger apprentice, trained the apprentice, and in some cases entered into an agreement whereby the apprentice could not compete with the master after the apprenticeship. Modern uses of non-compete agreements are generally premised on preventing high-skilled workers from transferring trade secrets or a customer list from one firm to a competing firm, thus giving the competing firm a competitive advantage. However, many non-compete clauses apply to low-wage workers or individuals who do not possess transferable trade secrets. The extent to which non-compete clauses are legally allowed and enforced varies under different jurisdictions. Some localities and states ban non-compete clauses or highly restrict their applicability. In jurisdictions where non-compete agreements are legal, courts tend to evaluate whether a non-compete agreement covers a worker's move to a relevant industry and reasonable geographic area, as well as whether the former is still bound by the agreement over a reasonable time period. An employer bringing a lawsuit may also be asked to identify a protectable business interest that was harmed by the employee's move to a different firm. Research shows that non-compete agreements make labor markets less competitive, reduce wages and reduce labor mobility. While non-compete agreements may incentivize company investment into their workers and research, they may also reduce innovation and productivity by employees who may be forced to leave a sector when they leave a firm. The labor movement tends to advocate for restrictions on non-compete agreements while support for non-compete agreements is common among some employers and business associations.

Web Search Results

• FTC Announces Rule Banning Noncompetes

  Noncompetes are a widespread and often exploitative practice imposing contractual conditions that prevent workers from taking a new job or starting a new business. Noncompetes often force workers to either stay in a job they want to leave or bear other significant harms and costs, such as being forced to switch to a lower-paying field, being forced to relocate, being forced to leave the workforce altogether, or being forced to defend against expensive litigation. An estimated 30 million [...] The Commission found that noncompetes tend to negatively affect competitive conditions in labor markets by inhibiting efficient matching between workers and employers. The Commission also found that noncompetes tend to negatively affect competitive conditions in product and service markets, inhibiting new business formation and innovation. There is also evidence that noncompetes lead to increased market concentration and higher prices for consumers. ## Alternatives to Noncompetes [...] “Noncompete clauses keep wages low, suppress new ideas, and rob the American economy of dynamism, including from the more than 8,500 new startups that would be created a year once noncompetes are banned,” said FTC Chair Lina M. Khan. “The FTC’s final rule to ban noncompetes will ensure Americans have the freedom to pursue a new job, start a new business, or bring a new idea to market.”

• noncompetition agreement | Wex | US Law - Legal Information Institute

  A noncompetition agreement, also called a noncompete or a covenant not to compete, is an agreement where one party promises not to engage in conduct that would increase competition for the other party for a specific period of time. This conduct can include divulging trade secrets or privileged information obtained while working under that employer or entering employment with the employer’s direct business competitor. A covenant not to compete is often found in an employment contract or a sale

• What is a noncompete agreement?

  Existing non-competes for senior executives. However, employers are prohibited from entering into or enforcing new non-competes with senior executives. Non-competes for the bona fide sale of a business entity. This is the other type of non-compete agreement, in which a business owner selling their company agrees not to compete with the new owner within set time and distance limits. [...] Historically, state law has governed worker non-competes. Recently, the Biden administration and federal regulators have embarked on efforts to ban or severely limit these agreements. The rule declares that an entity under the FTC’s authority engages in unfair competition if it enters into, attempts to enter into, or enforces a non-compete clause. [...] “A promise, usually in a sale-of-business, partnership, or employment contract, not to engage in the same type of business for a stated time in the same market as the buyer, partner, or employer. Noncompetition covenants are valid to protect business goodwill in the sale of a company. In employment contexts, requiring the employee, after leaving the employment, not to do a particular type of work, they are disfavored as restraints of trade. Courts generally enforce them for the duration of the

• [PDF] Non-Compete Agreements In New York State

  non-competes legal? A non-compete is only allowed and enforceable to the extent it (1) is necessary to protect the employer’s legitimate interests, (2) does not impose an undue hardship on the employee, (3) does not harm the public, and (4) is reasonable in time period and geographic scope. An employer’s legitimate interest may include protecting an employer’s trade secrets and confidential information and preventing employees from taking specialized skills they gained on the job to a [...] competitor. A non-compete’s restrictions must be no greater than necessary to protect the legitimate interests of the employer. To determine if a non-compete is enforceable, courts consider an employee’s job duties, the employer’s business interest, and the language of the agreement. A court will not enforce a non- compete unless it determines the non-compete meets the criteria in the above paragraph. A court may require an employee to comply with some parts of a non-compete agreement, even if [...] New York State Attorney General Letitia James Non-Compete Agreements In New York State Frequently Asked Questions What is a non-compete agreement? A non-competition agreement (“non-compete”) prohibits an employee from working for a competitor or opening a competing business, typically for a certain period of time after an employee leaves a job. A non-compete may be one section of an employment contract or a standalone contract that an employee signs before or after employment begins. Are

• Non-compete and non-solicitation agreements | Illinois Legal Aid ...

  When an employee starts a new job, the employer may ask the employee to sign a non-compete agreement. This agreement is also called a “covenant not to compete” or a “restrictive covenant.” It is a contract between an employee and their employer that states the employee will not do similar work for a competitor of the employer for a certain period of time or in a certain location. [...] Non-compete agreements are a way that companies try to protect their information and relationships. Sometimes they are legal, but they have to be reasonable. [...] Internet usage can be tracked. Use this to leave this site immediately. Remember to clear your browser history to hide activity. DONATE Help ILAO open opportunities for justice Non-compete and non-solicitation agreements are used by employers to protect their interests when employees leave the job. They can be used only in certain circumstances. ### Non-compete agreements