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Agreement in Restraint of Trade and Its Exceptions

Agreement in Restraint of Trade and Its Exceptions: A Guide for Business Owners

Agreements in restraint of trade, also known as non-compete agreements, have become increasingly popular among employers as a way to protect their business interests. These agreements are typically signed by employees and restrict their ability to work for a competitor or start a competing business for a certain period of time after leaving their current employer.

While non-compete agreements can be beneficial for employers, they can also be detrimental for employees and their ability to earn a living. As a professional, I have compiled a guide on the basics of agreement in restraint of trade, its exceptions, and what employers need to know before incorporating these agreements into their business practices.

What is Agreement in Restraint of Trade?

Agreement in restraint of trade refers to a contract between two parties that restricts one party’s ability to compete with the other. In an employment context, this typically means that an employee agrees not to work for a competitor or start a competing business for a certain period of time after leaving their current employer.

Non-compete agreements are usually intended to protect a company’s trade secrets, confidential information, and client relationships. However, they can also limit an employee’s ability to find work in their chosen field, which can be seen as an infringement of their right to earn a living.

Exceptions to Agreement in Restraint of Trade

While non-compete agreements can be legally enforceable in many states, there are exceptions to the rule. These exceptions include:

1. Unreasonable Scope: Courts may refuse to enforce a non-compete agreement if it is too broad in scope. This means that the agreement may be deemed unreasonable if it restricts an employee from working in too many industries or for too long a period of time.

2. Public Policy: Non-compete agreements may also be unenforceable if they violate public policy. For example, an agreement that prevents an employee from working in their chosen profession may be deemed against public policy.

3. Geographic Area: A non-compete agreement may also be unenforceable if it is too restrictive in terms of geographic area. For example, an agreement that prevents an employee from working in any state may be deemed too restrictive.

What Employers Need to Know

Before incorporating non-compete agreements into their business practices, employers should be aware of the following:

1. State Laws: Non-compete agreements are subject to state laws and regulations. Employers should familiarize themselves with the laws of their particular state before creating and enforcing a non-compete agreement.

2. Reasonable Scope: Employers should ensure that their non-compete agreements are reasonable in scope and not overly restrictive. This will increase the chances of the agreement being enforceable in court.

3. Consider Alternatives: Employers should consider alternatives to non-compete agreements, such as non-disclosure agreements or confidentiality agreements. These agreements may still offer protection for a company’s trade secrets and confidential information without limiting an employee’s ability to earn a living.

In conclusion, agreement in restraint of trade can be a useful tool for employers to protect their business interests. However, it is important for employers to understand the exceptions to the rule and ensure that their agreements are reasonable in scope. By doing so, employers can create a competitive advantage while also respecting the rights of their employees.