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How do non-compete agreements impact employees and employers?

Non-compete agreements, also known as covenants not to compete, are common in many professions. These agreements bar employees from working within a specific industry for a certain period of time after leaving their job. Non-competes can also place limitations on what areas of the country a person can work. According to a recent New York Times article titled To Compete Better, States Are Trying To Curb Non-compete Pacts, roughly 30 million workers, or about 20% of the workforce, sign non-compete agreements as a condition of their employment.

Non-compete agreements are a sensible idea in many fields. Employers that develop new technology and invest in intellectual property should not lose these advantages when employees move to competitors or create their own companies.

On the other hand, employees who sign non-compete agreements are often very limited in the types of employment opportunities they can pursue. Furthermore, by taking these workers out of the job market, it can hinder innovation in many fields. According to a reports from the White House and Treasury Department, non-competes are costly not only to individual workers, but to the economy in general.

What are states doing about non-compete agreements?

State laws vary widely on the enforceability of non-compete agreements. In Maryland, non-compete agreements must be limited in terms of the length and geographic scope. In short, non-compete agreements that are narrowly defined are more likely to be upheld by a court than those that are not.

In recent years, a number of states have passed laws limiting non-compete agreements. For instance, Hawaii barred non-compete agreements in the technology field. New Mexico banned non-compete agreements in the health care field. Oregon and Utah have limited the duration of non-compete agreements. Looking at the trends across the country, it does appear that non-compete agreements are less favored than they once were. At the same time, employees who enter into these agreements need to understand exactly what they are signing.

If you are an employee who is considering signing a non-compete agreement or covenant not to compete, it is a good idea to discuss your situation with a skilled lawyer first. Alternately, if you are an employer considering creating non-compete agreements, a lawyer can provide strategic, informed counsel. The attorneys of Thatcher Law Firm represent employees and employers across Maryland and Washington D.C.

Source: To Compete Better, States Are Trying To Curb Noncompete Pacts, New York Times, by Steve Lohr, June 28, 2016.

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