Covenant not to compete - sustany/dvg GitHub Wiki

A covenant not to compete, also called a "noncompete agreement" or "non-compete clause" - is an�agreement�where one party promises not to engage in conduct that would increase competition for the other party for a specific period of time. This conduct typically includes divulging trade secrets / privileged information obtained while working under that employer or entering employment with the employer�s direct business competitor. A�covenant�not to compete is often found in an�employment�contract or a sale of business�contract.

In an employment contract, a non-compete clause usually limits the employee�s ability to use the resources from the current employer to benefit a future employer.

• For example, a non-compete clause can prevent a consultant�from bringing her current clients to a new consulting firm.
• Alternatively, a noncompete clause could prevent that consultant from joining a new consulting firm for a specified period of time after she stops working for her initial company.

In a sale of business contract, a covenant not to compete prevents the party selling their business from creating a second business which would compete with the one sold for a specified period of time.�

The legality of non-compete agreements differs from state to state.

In the majority of states, noncompete clauses are allowed so long as the scope of the restrictions are reasonable.

• Reasonable covenants not to compete are permitted in Wisconsin on freedom of contract grounds so long as consideration is exchanged.
• While the exact definition of a �reasonable� restriction is unclear, some courts have concluded that non-compete clauses barring parties from participating in similar, but not identical, industries are too broad to be considered reasonable.
• In Karpinski v. Ingrasci, the court concluded that a dentist could use a non-compete agreement to temporarily bar a former employee from the field of dentistry but not from the field of oral surgery.
• Additionally, courts tend not to uphold non-compete agreements that bar former employees from obtaining new employment entirely as these clauses act more like penalties to dissuade employees from quitting.

In a minority of states, non-compete agreements are almost entirely prohibited.

• California law bars covenants not to compete in nearly all circumstances.
• In�Edwards v. Arthur Anderson, the California Supreme Court determined that the law should be read strictly, and not only void the �unreasonable� noncompete clause, but all noncompete clauses other than those explicitly allowed in the code.