Many organizations feel that the best way to protect their business interests, competitive edge, and trade secrets is through the use of non-compete agreements that bar employees from moving on and away to another, competing company. Though a carefully-crafted non-compete agreement can be an extremely effective tool, it is important that all involved understand that their use is limited and that they need to be legally valid in both their presentation and their format. Here are some valuable tips for creating a non-compete agreement that will stand up in court.
1. Like any contract, a non-compete agreement must include some kind consideration. The person who is agreeing to the terms of the contract must be receiving something in return for conceding to the contract’s terms. In the case of a new or prospective employee, the non-compete can be part of their employment contract – they are getting their position in exchange for the agreement. However, if an existing employee is asked to sign a non-compete, there must be an offer of a benefit of some kind. An existing employee that is simply presented with a non-compete agreement to sign can later argue that it was signed under duress if there has been no consideration provided in exchange for agreeing to its terms.
2. A non-compete agreement must have a legitimate purpose. It must be clear that the agreement is intended to protect the business or to prevent trade secrets from being revealed. A non-compete agreement that is shown to have been required without a critical business interest being served is likely to be ruled invalid in later court proceedings.
3. A non-compete agreement’s terms are required to be both reasonable and realistic. They are not meant to be punitive or to prevent an employee from being able to continue to earn a living in the same field in the future. In order to ensure that a standard of reasonableness is included, it is a good idea to limit the duration or scope of the agreement to a period that can be shown to be in the interests of the business but without unduly burdening the employee.
It is important to remember that preventing competition from another business is not a legitimate business interest, and therefore cannot be the sole purpose of a non-compete agreement. Trying to prevent an employee from leaving to go to a competitor and taking clients with them is a legitimate business interest: preventing them from working in the same field is not. Only such matters as protecting proprietary information or trade secrets applies. In a case brought by a former employer against an ex-employee over a non-compete agreement, if the court finds that the terms are too limiting, vindictive or punitive, there is a risk that the agreement will be deemed unenforceable.
In order to ensure that a non-compete agreement provides you with the protection that you are seeking, the Philadelphia law firm of Bochetto & Lentz can help. Contact us today for more information.
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