Starting a Business

Noncompete Agreements: What You Need to Know

How binding is that noncompete agreement you signed?
2 min read
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Years ago, you signed a noncompete agreement with your employer. Now you want to start your own, similar business -but can you?

You have several issues to consider, says Wayne A. Hersh, an attorney with Berger, Kahn, Shafton, Moss, Figler, Simon & Gladstone in Irvine, California. Before proceeding with your business plans, get copies of everything you signed and then address these questions:

1. Is the agreement enforceable? The enforceability of agreements varies significantly by state. For example, Hersh says, they're generally illegal in California, while in New York they're enforceable if the restrictions are "reasonable." Noncompete agreements typically consist of time, geography and industry restrictions. That means you may need to change your location or target market, or wait until the time limit expires. Of course, if you're going into a different industry, the agreement probably won't apply.

2. What are your ethical responsibilities? Even if your noncompete agreement won't hold up in court, you may feel obligated to honor it simply because you said you would when you signed it.

3. Are there intellectual property issues to consider? Regardless of the enforceability of a formal agreement, you can't compete using intellectual property that belongs to your employer, Hersh says. "A trade secret is a piece of information that has an independent economic value because it's not generally known and it could be anything," says Hersh. "Some courts have held that even customer lists can be considered trade secrets."

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