Business Innovation and the Law Perspectives from Intellectual Property, Labour, Competition and Corporate Law
Perspectives from Intellectual Property, Labour, Competition and Corporate Law
Edited by Marilyn Pittard, Ann L. Monotti and John Duns
Chapter 23: The law and policy of non-compete clauses in the United States and their implications
A person who accepts a job in the United States may be required to sign a contract that includes a covenant not to compete (‘non-compete’) as a condition of employment. The idea of a non-compete is that it is a contractual term (sometimes presented in a contract by itself or with other employment matters) that serves to protect certain interests of the employer. Non-competes arise in the context of the principal–agent relationship between employer and employee. The employee, or agent, acts on the behalf of the employer (the principal), and the details of the relationship are determined by express or implied agreements between the parties. By requiring the employee to sign a non-compete, the employer puts the employee on notice that the employee will be exposed to confidential information that the employer will trust the employee to keep confidential after the relationship terminates. Non-competes thus act as a signal to the employee, putting him or her on notice about the employer’s business interests and intentions. The employee’s knowledge of the employer’s intentions enables the employee to avoid violating the terms of the relationship, and thus better avoid future conflict with the employer. Non-competes are in this way prophylactic by nature and may serve to reduce future litigation.
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