Non-compete agreements and non-solicitation agreements are legal tools that employers often use to protect business interests after an employment relationship ends. They are generally restrictive covenants that can limit where you work, who you contact, and how you compete. It is helpful to understand scope, enforceability, and consequences before you sign.
What is a non-compete agreement?
A non-compete agreement focuses on the type of work. These documents are meant to keep you from working with a competitor or starting up a business in the same market. The agreement should cover a defined period, within a defined geographic area, and within a defined scope of work. The employer’s goal is to prevent unfair competitive use of confidential information, training, or market position.
Whether the employer can successfully enforce the agreement depends on a variety of factors including state law, the employee’s role and whether the restriction is reasonable. Courts can often narrow or void restrictions that are too broad.
What is a non-solicitation agreement?
A non-solicitation agreement focuses on attempts to take other clients or workers with you when you leave. These tools typically do not bar you from working for a competitor but instead focuses on relationships rather than on the job itself.
Non-solicitation provisions also must be reasonable in time and scope. They often rise or fall based on how “solicitation” is defined, how the restricted groups are described, and whether the employee had meaningful contact with them.
Violations are costly, as illustrated by a recent example involving competing wealth management companies. In this case, UBS has accused former team members of violation of non-solicitation agreements by taking former clients with them when they moved to RBC resulting in millions in losses. The former employer has asked a court to restrain the advisors from taking these former clients while the employer seeks further legal remedies.
How do these agreements impact your options if you are fired?
Termination does not automatically cancel these agreements. Many continue to apply regardless of the reason for separation. Some contracts include carveouts for layoffs, reductions in force, or termination without cause, though these are not universal. It is important to review the language used in the agreement to determine the intended reach.
Employers may use both non-compete and non-solicitation agreements for employees. Though both are common they serve different purposes. Non-compete agreements restrict competitive work while non-solicitation agreements restrict outreach to protected relationships. After termination, both can remain enforceable depending on state law and contract terms. Legal challenges are possible and often focus on the reasonableness, drafting precision, and conduct during the transition.