As your business grows and scales, you will likely increase the number of employees you hire. Many new businesses will require new employees to sign a non-compete clause or agreement for the protection of their business.
What Is A Non-Compete Clause?
Non-compete clauses are usually found in employment contracts. Employers will include non-compete clauses in the contract that is issued to an employee before they start their employment.
Essentially, a non-compete clause prevents the employee from taking actions that will compete with the business. Non-compete clauses can vary depending on the type of company and the nature of the employee role.
By signing a non-compete clause an employee is agreeing not to work for competitors of the company in the future. The employee becomes contractually bound not to complete certain actions during and after their employment.
What Kind of Businesses Use Non-Compete Clauses?
For any non-competition clause or agreement to be enforceable it must be seen as protecting a legitimate business interest.
Some business interests that can be legitimately protected include:
● Businesses with confidential information
● Businesses with specialized training and skills programs
● Businesses dealing with trade secrets
Businesses also often use non-compete clauses when they merge or acquire other businesses.
What Does A Non-Compete Clause Aim To Do?
Non-compete clauses try and prevent employees from:
● Working for a competitor of the company or an individual that is seen as a competitor of the business
● Creating a new company that offers the same services or products
● Providing services that would compete with the business
● Recruiting or poaching any existing employees of the business
For employers, the aim of a non-competition clause is to effectively retain employees, protect their customers, safeguard their confidential information, and prevent any competition that they deem to be unfair.
Having a business attorney that can prepare a well-drafted and enforceable non-compete agreement or clause adds a great deal of value to the business.
Also note, if you are a business that is acquiring another business, you need to review your non-competition agreements.
The last thing you want as a business is to find that you are now competing with employees and personnel from the business you acquired.
Are All Non-Compete Clauses Enforceable?
There are rules relating to the enforceability of non-compete agreements.
This is why it is very important for any business wanting to use a non-compete clause to hire an attorney so that they can draft an appropriate clause.
On the other hand, if you are an employee you should speak to an attorney before signing any non-compete agreement or clause. This will ensure that you are suitably protected before starting your new role or leaving an existing one.
Some states can view non-compete clauses as too restrictive and render them unenforceable. It is always important to have an attorney prepare your documentation.
Another important thing to remember is that non-compete clauses do need to be regularly reviewed. Business and employee needs, and the law relating to contract clauses, change regularly so you should ensure that you are adequately protected.
Non-Compete Agreements That Are Unlikely To Be Enforced
Different states have different rules when it comes to contracts and non-compete clauses. Your attorney will be able to advise you about what you need to look out for.
However, in states that do allow non-compete clauses, there are some common factors that could render a non-compete clause as unenforceable.
These include the following:
- Time limitations: If the clause prevents an employee from competing for a long period, perhaps 10 years, then this could be deemed to be an unreasonable time limitation. Businesses should be careful not to restrict employees for too long. For most industries, a non-compete clause ranging from a few months to a year is seen as appropriate.
- Geographical location: If the non-compete clause is too wide in terms of location, then again the courts could render the whole clause unenforceable. The law will require the specific geographical location relating to the non-compete clause to be reasonable (more on this below).
- Consideration: This is an important element of any non-compete clause. If the court believes that the non-compete clause does not provide the employee with any value in return, then the clause could be seen as unenforceable.
- One size for all: An approach that uses one standard non-compete clause for all employees could be counter-productive. A one size fits all approach does not work when it comes to non-competition clauses. The clause needs to be specific to your business and industry circumstances.
Whilst non-competition clauses and agreements can help employers retain employees they deem to be valuable, having badly drafted clauses could mean that the employer cannot enforce the clause.
What To Consider When Preparing A Non-Compete Clause
The most important thing to consider when requiring or signing a non-compete clause is to ensure that it meets your needs.
There are some common mistakes listed below that could affect the clause and its enforceability.
A well-drafted non-compete clause will include the following:
- Timing: the length of time in which the non-compete clause is effective is important. Employers cannot have a non-compete clause that runs indefinitely. Instead, the non-compete clause should have a definite end date. Most employers do not insist on a non-compete clause that lasts beyond 1-2 years.
- Location: the non-compete clause should set out what geographical location the non-compete clause applies to. Being specific about the area is always best to ensure the clause has certainty and is not construed as being too wide or too restrictive. Of course, the location and area will all depend on the role and the industry.
- Competitors: a good non-compete clause will identify exactly who the competitors are. A blanket clause preventing the employee from working in any other role or industry may be deemed to be too broad. The more
- Damages: of course, the clause will include the damages to be paid in the case of a breach of the clause.
- Assignment: having the ability to assign the agreement is an important part of the clause for businesses. An assignment provision means that the business can assign the agreement to a new purchaser if needed.
Businesses invest in their assets, their customers, and their employees.
All the goodwill and confidential information they generate is of value to the business, so it is critical for them to ensure that they are not exposed to unfair competition.
Whilst non-compete clauses need to be drafted carefully, we advise that businesses stay abreast of all application legislation and state laws relating to competition.
Speak To Us Now About Non-Compete Agreements and Clauses
Our experienced attorneys are available to discuss your business needs and develop a bespoke non-compete agreement to suit your budget, industry, and business needs.
Our attorneys will also ensure that your non-compete agreement is in accordance with the laws of the state within which you operate and is transparent and enforceable, while also advising you of other strategies to protect your business.
Call our experienced attorneys today on (561) 207-2018 for a free and confidential consultation. Alternatively, email us at email@example.com.