What Is Non-Compete Agreement?
A non-compete agreement (or “restrictive covenant”) is an important tool for businesses to protect their valuable assets and prevent their employees from competing against them. While non-compete agreements can be useful, they also raise a number of legal concerns and should be carefully crafted to ensure that employers are not overreaching. This blog post will provide an overview of what a non-compete agreement is, how it works, and what you need to know to make sure yours is effective.
What is a Non-Compete Agreement?
A non-compete agreement is a contract between an employer and employee in which the employee agrees not to compete with the employer during or after the employment relationship. Non-compete agreements are also known as restrictive covenants.
There are three types of non-compete agreements:
1. An agreement not to compete with the employer during the employment relationship.
2. An agreement not to compete with the employer after the employment relationship has ended.
3. An agreement not to solicit or accept business from the employer’s customers or clients during or after the employment relationship.
Non-compete agreements are typically used in situations where an employee has access to confidential information or could potentially damage the employer’s business if they were to leave and start their own competing business. For example, a non-compete agreement might be used for an employee who is privy to sensitive customer data, has developed a unique company process, or possesses other trade secrets. Non-compete agreements can also be used in situations where an employee is being hired away from a competitor and the employer wants to protect their investment by preventing the employee from going back to their old job and starting a competing business
When is a Non-Compete Agreement Enforceable?
It is important to know when a non-compete agreement is enforceable, because if it is not, then the agreement is void and unenforceable. In order for a non-compete agreement to be enforceable, it must be:
1. In writing – The agreement must be in writing in order to be enforceable. This means that it cannot just be an oral agreement between the parties.
2. Supported by Consideration – The agreement must be supported by consideration, which means that each party must receive something of value in exchange for entering into the agreement. For example, if an employer provides an employee with a raise or bonus in exchange for the employee signing a non-compete agreement, this would be sufficient consideration.
3. Reasonable in Time and Scope – The agreement must be reasonable in both time and scope. This means that it cannot last for an unreasonably long period of time, and it also cannot prohibit the employee from engaging in too broad of range of activities. If the agreement is found to be unreasonable in either time or scope, it will likely be declared void and unenforceable.
What Are the Consequences of Violating a Non-Compete Agreement?
If you violate a non-compete agreement, you may be subject to legal action from your former employer. They may sue you for damages, or seek an injunction to prevent you from competing with them. If they are successful, you may be ordered to pay damages, or be barred from working in your chosen field. Violating a non-compete agreement can also damage your reputation, and make it difficult to find future employment.
How to Draft a Non-Compete Agreement?
If you are an employer, you may want to consider having your employees sign a non-compete agreement. A non-compete agreement is a contract between an employer and employee that restricts the employee from competing with the employer during or after the employment relationship.
There are several things to consider when drafting a non-compete agreement, such as:
1. The geographic scope of the restriction. For example, will the restriction be limited to a certain city, state, or country?
2. The duration of the restriction. For example, will the restriction be for a certain period of time after the employment relationship ends?
3. The scope of activities that are restricted. For example, will the employee be restricted from working for a competitor or starting their own business in the same industry?
4. The consequences of breach. For example, will the employee be required to pay damages if they breach the agreement?
5. Whether the agreement is enforceable. This will depend on factors such as the jurisdiction in which it is signed and whether it is considered reasonable in light of public policy concerns.
Are There Any Exceptions to Non-Compete Agreements?
There are a few potential exceptions to non-compete agreements. For instance, if an employee can show that the agreement is overly restrictive and not necessary to protect the employer’s legitimate business interests, he or she may be able to get out of the agreement. Additionally, some courts have found that non-compete agreements are unenforceable against certain types of workers, such as low-level employees and independent contractors. Finally, some states have laws that void or limit the enforceability of non-compete agreements.
Non-compete agreements can be a useful tool for employers to protect their employees and help ensure that they are not leaving the company with proprietary information. It is important, however, that both parties understand what is included in the agreement before it is signed. By taking the time to outline all of the details before signing a non-compete agreement, both parties can be assured that their rights and interests are properly protected. With this knowledge in hand, employers should feel confident in implementing these documents as part of their overall business strategy.