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What’s the Deal with Non-Compete Clauses?

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    NEWSLETTERS

    There’s never a lawyer around when you need one.

    When my good friend Jay Margalus and I were teaching our business for indie devs class at DePaul last quarter, the always-popular topic of non-compete clauses came about. More specifically: Are they valid? Are they enforceable? We didn't know for sure. But we had heard things, as I assume you have as well. 

    For those of you who aren't familiar with non-competes, let me back up and explain.

    It can professionally cripple somebody: An agreement that new hires sign with the understanding that after the employer-employee relationship has ended, they are “not to enter into or start a similar profession or trade in competition against another party.” (Okay, I just quoted Wikipedia, but that is the gist of what it means.)

    But an issue comes in often after that employer-employee relationship is over and the employee wants to, of course, keep working. Their skill sets aren’t wildly different after leaving, so, of course, they may wind up at a similar company or doing similar things — and that’s when the previous company will be upset. Oftentimes, these non-compete agreements are taken to court and found to be unenforceable for this or that reason.

    FindLaw comes to the rescue here with an explanation of what criteria is used to determine whether a non-compete clause is valid. There are three main things the agreements must adhere to to be considered on the up-and-up. Ready? They are:

    1. It must be supported by consideration.
    2. It must protect the employer’s business interests or trade secrets.
    3. It must be realistic and reasonable.

    The reason, I assume, most non-compete lawsuits are thrown out is that they are unrealistic and unreasonable — to the extent that they prevent someone from being able to earn a living. And, as FindLaw says, “preventing honest competition is not a legitimate business interest.”

    If you want to introduce a non-compete clause and are worried it might be thrown out, it is within your right to put a time limit on it. But you can’t expect people to move far away and work somewhere totally different just because they don’t work for you anymore.

     

    David Wolinsky is a freelance writer and a lifelong Chicagoan. In addition to currently serving as IFC’s comedy, film, and TV blogger, he's also a comedy-writing instructor for Second City and an adjunct professor in DePaul’s College of Computing and Digital Media. (He also co-runs a blog behind the DePaul class, DIY Game Dev.) He was the Chicago city editor for The Onion A.V. Club where he provided in-depth daily coverage of this city's bustling arts/entertainment scene for half a decade. His first career aspirations were to be a game-show host.