Non-Competition Agreement

DEFINITION of 'Non-Competition Agreement'

A legal agreement in which one party is restricted from working as a direct rival to the employer for a specific time and place. The purpose of non-competition agreements is to prevent an ex-employee from exploiting resources, knowledge and/or leads that were gained from a previous employer.

BREAKING DOWN 'Non-Competition Agreement'

The likelihood that authorities will enforce a non-competition agreement can vary depending on state laws and whether the courts feel that the restriction is reasonable. For example, a one-year restriction for a salesperson may be considered reasonable, as there is the threat that the salesperson may use leads gained from his or her old job. However, a one-year restriction for an engineer working in a high-tech field may be unreasonable, because the fast-paced nature of the field could render the out-of-work engineer's knowledge obsolete.