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What is a covenant not to compete?

A covenant not to compete, more commonly referred to as a noncompete agreement, is an agreement typically signed by employees in conjunction with an employment agreement, although it can occur in other situations as well (for example, two business partners may enter into a noncompete agreement). In a noncompete agreement, the employee agrees that while employed, and often for a specified amount of time following employment, they will not engage in any business activities related to the scope of their employment. In other words, the employee agrees not to compete with the employer. These agreements also generally include confidentiality provisions, whereby the employee agrees not to use or divulge any confidential information learned while employed. These agreements are obviously broader than nondisclosure agreements, which mainly just involve keeping certain information confidential.

Every state has its own laws with regard to noncompete agreements and the extent of their legality. While most, if not all, states have no problem with noncompete agreements while the employee is employed, several states are less likely to enforce them with regard to the period of time after the employee has left the job. For example, California rarely enforces post-employment noncompetition agreements. Where these post-employment terms are enforced, they are only done so if the agreement is reasonable in terms of its scope (the fields which the employee is not permitted to practice in) and duration (how long the employee is prohibited from practicing in the defined fields).