Though many cast aspersions on non-compete agreements, from an employer’s perspective there is a very good reason for using them: They protect a business from the negative repercussions of an employee’s departure.  A well-crafted non-compete agreement will limit a former employee’s ability to compete against their business and from sharing trade secrets or operational knowledge with competitors. As a business owner, it is imperative that you make sure that any non-compete agreement that you ask an employee to sign will be enforceable. Otherwise, it is just so much paper.

In order for a non-compete agreement to be enforceable, it needs to meet the legal requirements. These are fairly straightforward and include:

  • The agreement must be in writing
  • The agreement must be part of an employment contract
  • The agreement must be based on a consideration of value. This means that you need to offer the employee something of value in exchange for their signing the agreement. For a new employee, the thing of value is generally considered to be the job. For employees that are already working for you, the consideration of value usually comes in the form of a raise, a promotion, or a bonus.
  • The agreement must be written with the goal of protecting the company’s legitimate business interests. What this means is that the terms must clearly be written with the goal of preventing the employee from being able to compete with your business, from taking your business’ customers as they go, or from sharing or using your trade secrets or any operational knowledge that they have gained while in your employee. A non-compete agreement can not have terms that are mean-spirited or meant to preclude former employees from earning a living in the future.
  • The terms of the agreement must be reasonable. If, for example, its terms are too broad in terms of the amount of time that an employee is prevented from working in the same field or if the geographic area that they are prevented from working in is so broad that it would force an employee to move in order to work in the same industry again, it is unlikely that it will be considered reasonable, and therefore will not be enforceable

If you are interested in creating an effective non-compete agreement to protect your business, we can help. Contact our experienced Philadelphia business attorneys today to set up a time for us to meet.