What You Need to Know Before Signing a Non-Compete Agreement

You just received a job offer with good pay and benefits. But there’s a catch: the employer wants you to sign a non-compete agreement (NCA) as part of your employment contract.

Should you sign it? Can you negotiate it? Many job applicants don’t understand what a non-compete actually entails and how it can affect their career.

What are Non-Compete Agreements?

Non-compete agreements are made between an employer and potential employee, and it usually enumerates how and where an employee will work after leaving their job.

Employers use NCAs to prevent employees from sharing valuable company information to their next employer, such as:

  • Customer lists
  • Vendor names and contacts
  • Confidential information: like ongoing product research, software used, etc.
  • Trade secrets

NCAs are often confused with non-disclosure agreements. While the two agreements have some similarities, non-disclosure agreements don’t include restrictions on the companies you can work with in the future. NCAs, however, may restrict you from working with your last employer’s competitors for a specific period of time.

Here are some of the common questions about NCAs to help you understand it next time a potential employer asks you to sign one.

Are non-compete agreements enforceable?

Non-compete agreements are enforceable depending on which state you work in. For instance, NCAs are illegal in California, while Georgia allows them based on specific circumstances.

Truth is, unless you hold an important position in a big company, it may be hard for your employer to sue you for violating a non-compete agreement. But this doesn’t stop them from asking potential employees to sign one. For companies, NCAs act more as a deterrent. They know the fear of getting sued will prevent many employees from working with a direct competitor after they resign.

Why do companies require employees to sign NCAs if they’re hard to enforce?

The workforce has changed since our parents and grandparents time. Spending 10 or even five years in one company is no longer the norm—it’s the exception.  Talented employees are easily lured by other companies with better pay, more benefits, or a promotion. Since it’s impossible to prevent every single employee from getting poached, companies use NCAs to protect their proprietary information from getting stolen once their talent leaves for another job.

How can signing an NCA affect your career?

NCA contracts vary per state and company, so the best you can do is look at the most important factors of the contract, such as:

  • Non-compete location: does the agreement prevent you from working with the city, state, or national competitors? The bigger the scope, the harder it will be for you to transition to a new job later on.
  • Specific companies: simply agreeing to not work with a prospective employer’s direct competitors can stifle your career, as “direct competitor” can mean different things to everyone. The companies a potential employer considers to be a competitor can also change if their operations grow, such as when they venture into new industries or tap new markets. To prevent confusion and abuse of this contract, ask for the specific companies they consider as a competitor and that you’re prohibited to work with while the NCA is in force.
  • Duration: will the NCA prevent you from working with direct competitors for six months, one year, or more than that?

The Reality

The unfortunate reality is, employees don’t have leverage when it comes to signing NCAs. You either have to sign it or the employer will rescind their job offer. Knowing what the contract entails, however, can help you make an informed decision about the job and its impact on your future career options, so it’s still worth knowing these details.