Eli5: how exactly can companies enforce non-compete contracts? How is it their business what company you go to, and how would they even know?
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They can enforce them by taking the matter to court.
The reason it is their business (to some extent) is because by employing you, they are letting you in on valuable, competition-sensitive information that other companies might like to get their hands on. This could range from really secret things like the recipe for the soda that your company makes, to more mundane stuff like contact details for clients or suppliers, or information on the rates that those clients pay or what you pay your suppliers. These are all things that a competing company could use to their advantage. Or things that an employee could use in order to start their own business. So companies have a right to protect themselves against such risks, by including clauses in their employees’ contracts that bar them from sharing or using certain information that they became privy to as a result of their employment.
For instance, suppose I run a paper company that acts as a middleman, selling paper from big suppliers to local businesses. A big part of my company’s value is the network of clients and suppliers that I’ve built up over the years. I mean, it’s not like selling paper is rocket science. Anyone can start a paper company, but they’d have a hard time making headway without having clients to sell to, or without good deals with suppliers that allow for better margins or more competitive prices. So as the owner of a successful paper company, I really want to protect this information, or else one of my employees could just take it and start their own company. Or, one of my competitors could hire my employee and get them to share this information.
How would they know? That depends. In the above example, it’s probably not hard to find out that my employee went to work for my competitor, or that they started their own paper business. Certainly I would notice if my clients suddenly started leaving me for the competition, and it wouldn’t be hard to link that to this employee. In particular, if their contract said they couldn’t found their own paper company in the same state within 5 years of termination, and they did so anyway, that’s a pretty open-and-shut case.
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