Non-compete clause

A non-compete clause or covenant not to compete (CNC), is a term used in contract law under which one party (usually an employee) agrees not to pursue a similar profession or trade in competition with another party (usually the employer]). As a contract provision, a CNC is bound by traditional contract requirements including the consideration doctrine. The use of such clauses is premised on the possibility that upon their termination or resignation, an employee might begin working for a competitor or starting a business, and gain competitive advantage by abusing confidential information about their former employer's operations or trade secrets, or sensitive information such as customer/client lists, business practices, upcoming products, and marketing plans.

Conversely, a business might abuse a non-compete covenant to prevent an employee from working elsewhere at all. Most jurisdictions in which such contracts have been examined by the courts have deemed CNCs to be legally binding so long as the clause contains reasonable limitations as to the geographical area and time period in which an employee of a company may not compete. Courts have held that, as a matter of public policy, an individual cannot be barred from carrying out a trade in which (s)he has been trained except to the extent that is necessary to protect the employer.

The extent to which non-compete clauses are legally allowed varies from one jurisdiction to another. Some jurisdictions, such as the state of California, invalidate non-compete-clauses for all but equity stakeholders in businesses.