Non-Compete Agreements: A Helpful Guide
Non-compete agreements: they are as tricky as they are controversial. But if you feel they are best for your business, you shouldn’t shy away from them. Employers stand to benefit from these agreements in numerous ways, including guarding their trade secrets and gaining time to train someone for the now-unoccupied position before the competition gets a leg up. Here is what you should know about non-compete agreements.
Not all Non-Compete Agreements Are Enforceable
In fact, it is common for them to be thrown out when challenged in court. In some cases, this is because of the way the law is written in the area where the lawsuit is filed. However, poorly written non-compete agreements are the bigger problem. So, what does a non-compete need to stand a chance of holding up in court:
- An exchange of value—usually severance pay
- Protection of legitimate business interests
- Limited in scope, geography, and time, so as to not prevent the employee from finding work
Working with a contract attorney will help ensure that your non-compete contracts meet all the above points.
Key Elements of Non-Compete Agreements
Non-compete agreements, like any contract, function best when they are fully tailored to your company and interests. However, there are certain elements most non-compete agreements will have. These are as follows.
Duration of the Agreement
The length of a non-compete agreement may be limited by law. Common durations start at six months and cap out at two years, though shorter agreements are both more common and more easily enforced. It is critical that the agreement is not designed to cover such a significant period of time that the employee will effectively be removed from their career field.
Scope of the Agreement
The scope specifies the specific areas of employment or activities that are restricted throughout the duration of the agreement. It is critical that this is clearly worded, as any ambiguities could result in troubles should things head to court. Employers should carefully consider the various functions carried out by the employee and only restrict those that stand to cause them problems. Limited scope, like a shorter duration, helps to prevent the employee from being unable to work at all.
When you set the geographical region, you are determining where the employee cannot establish a competing business or work for a competitor. This must be kept reasonable. For example, if your company only operates in the Midwest, it is not reasonable to prevent the employee from working on the East Coast. Restrict this to areas where your business actively operates.
Clarification of the Competition
Simply saying an employee cannot work for the competition is too broad. Many businesses could be considered competition, even if not in a direct way. In this clause, you should lay out what attributes a company must have in order to be the competition, or if possible, name the companies you consider to be competitors.
Protect Your Interests With a Vetted Contract Attorney Near You
Because non-compete agreements are so tricky, the only way you can ensure yours is enforceable is by working with a contract lawyer. Contracts Counsel is a boutique marketplace that helps you connect with vetted contract lawyers in your area. Protect your business with ContractsCounsel.com.