A non-compete agreement (NCA) is a legally binding restrictive covenant designed to prevent the signee from exploiting competitive advantages gained through association with the other party in the agreement. The agreement usually stipulates a period of time that the NCA will be in effect and a geographic area that it includes.
The purpose of an NCA is protecting the employer's business assets. At its simplest, an NCA might prevent a former employee from starting a business that would compete with the employer or accepting employment with a current competitor. That stipulation is designed to prevent a competitor from benefiting from information the former employee gained through his term with the company. Examples of such information include trade secrets, product designs and other intellectual property, as well as sensitive information including customer data, operational data and marketing plans.
Employees usually gain expertise the systems they work with over the term of their employment, and that expertise is not subject to restriction. A network administrator, for example, may leave a company with more skills than he or she had at the start of the job. An NCA cannot prevent the employee from using general skills gained while they were with the company.
A well-crafted NCA should adequately protect the company without unduly hampering the employee's future. Overly restrictive NCAs can effectively make it impossible for the signee to find a job in their chosen field that doesn't require them to relocate.
Commonly, an NCA is signed by an employee as part of a severance agreement, although some businesses require new hires to sign them. Non-compete agreements signed in one jurisdiction may or may not be binding in another, depending on local laws.
See also: non-disclosure agreement (NDA)