A non-compete agreement is a promise by an employee that he or she will not, for themselves or others, engage in business activities that compete with his or her employer. The non-compete agreement typically continues even after the employment relationship ends, although for a limited time. The purpose of the agreement is to prevent a former employee from using the information, skills or relationships that he or she acquired during the employment relationship to benefit the employer’s competition.
The employer must give the employee something of value in exchange for the promise not to compete. For example, a non-compete may be a condition of employment and included in the initial employment agreement. Or, a non-compete may be part of a termination agreement, given in exchange for additional severance payments. Non-compete agreements are usually limited in their scope in terms of time (for how long the employee is barred from competing with the former employer), geography (where the employee is barred from competing with the former employer), and means (in what way the employee is barred from competing with the former employer).
A non-solicitation agreement is a promise by an employee not to induce the employer’s clients, customers and/or employees to leave the employer and transfer their relationship to the employee or a competitor. The non-solicitation agreement typically continues after the employment relationship ends, also for a limited time. An employer must have a valid business reason for the restriction, such as protecting proprietary customer lists. Non-solicitation agreements cannot prevent clients, customers and employees from leaving voluntarily. It can only restrict the influence that a former employee can have over that decision.
Whether non-compete and non-solicitation agreements are enforceable will depend on whether the employer has a valid business reason for the restriction, whether the restriction on the employee is a reasonable to achieve the valid business reason, and whether they prevent the employee for working. The law varies from state to state regarding what is considered a valid business reason and what restrictions are considered reasonable.