There was a time when signing non-compete agreements were only required of employees who knew trade secrets, or whose departure to a competitor represented a risk to a business’s profitability. But over the last several years, employees of large and small companies are being asked to sign the contracts, apparently regardless of their position or whether their departure represents an actual threat. What had once been a reasonable business tool that was used judiciously has become controversial, with many accusing employers of using them punitively, restricting employees’ ability to earn a living. This begs the question of what circumstances lead to businesses actually needing a non-compete.
One of the top reasons that a business asks an employee to sign a non-compete agreement is that training represents a significant investment of resources and time, and often includes sharing proprietary information. It makes sense that those combined assets would make an employee invaluable to a competitor, who might try to recruit a successfully trained employee away to benefit their own organization. In this circumstance, a non-compete agreement that restricts employees from moving to a competitor, or working with the same clients or in the same industry or geographic area, makes good business sense. But these restrictions need to apply common sense and provide employees with the ability to continue earning a living. Applying terms that are overly invasive or limiting will likely lead to an unenforceable contract.
For businesses whose employees are not provided access to confidential information and who do not pose a competitive threat, a non-compete agreement is generally unnecessary, and asking potential employees to sign them may lead to difficulty in hiring or a feeling of distrust between management and staff. More importantly, when a non-compete agreement is required in a circumstance where it is not warranted, it is unlikely to be viewed as reasonable or enforceable by a judge.
Businesses that hire people whose skills are not industry-specific or whose loss does not represent a threat to a business’s profitability usually do not need non-compete agreements for those employees. Since each employee or position is unique, it is a good idea to review how best to protect your business interests with an attorney with experience in employment law. For more information, contact us today to set up a time for a consultation.