The term non-compete agreement refers to a contract that states an employee will not enter into competition with their employer after leaving the company. Employees may be required to sign a non-compete agreement as part of their employer's application or onboarding processes.
Also referred to as a non-compete clause (NCC), a non-compete agreement (NCA) is a document typically presented, and signed, by an employee as part of a company's onboarding process. By signing the document, the employee is agreeing they will not enter into competition with their employer upon resignation or termination of employment.
Competition may be defined as starting a similar profession or trade that directly competes with the employer. The use of such agreements is based on the notion the employee will learn, or be exposed to, certain trade secrets while working with the employer. This can include operating efficiencies, marketing plans, customer lists, and other sensitive information.
There have been a number of challenges to the enforceability of non-compete agreements, and several states prohibit companies from using these contracts. For example, overly-broad NCAs can effectively prevent the employee from working in their profession. Typically, courts have deemed these documents as enforceable if there may be clear harm to the employer, and there are reasonable limits to the contract's geographic reach and duration.
Note: Individual states, such as California, have passed a number of laws that protect an employee's rights. If the legality of an agreement is called into question, the best course of action is to consult with an experienced labor attorney.