Non-compete agreements have become increasingly popular in recent days. These contracts document terms between an employer and their employee that prevent the employee from leaving the company and going to a competitor, or into a competing business. Non-compete agreements are meant to protect trade secrets or marketing strategies that the employer feels would disadvantage them if they were available outside of the company, but they may also be used to prevent an employee from using the skills, training or information that the company invested in them for the benefit of another employer.
Though many companies ask their employees to sign non-compete agreements, they are often unenforceable. This is particularly true if their terms are viewed as being unreasonable or unfair to the employee. If an individual who has signed a non-compete agreement is effectively kept from moving onto another job or to progress within their career, the courts are unlikely to restrict them to its terms.
For employers, what this means is that the non-compete agreement that you ask your employees to sign must contain reasonable terms that both protect you and provide them with the freedom to earn a living. The key components of a good non-compete agreement include:
- A Specific Scope – A non-compete agreement cannot preclude an employee from working at all or be written in terms that are overly broad. It must be very specific about the type of work that an employee is prohibited from pursuing. This both demonstrates the broad range of other activities that a departed employee can pursue in the interim between the end of their employment and the end of the term of their agreement, and also makes clear what they are not able to do in order to avoid confusion.
- A Reasonable Duration – Non-compete agreements are not considered reasonable if they detail an indefinite or overly long period of time. Standard durations range between six months and two years, depending upon the industry and type of business.
- Geographic Limitations – Though it is expected and reasonable for a company to prohibit an ex-employee from working within close proximity to the region where they had previously worked or the immediate area in order to prevent direct competition, the location specifics should not be so broad (i.e. within the state or on the East Coast of the United States) that it forces the individual to move.
- Competition – Many non-compete agreements prohibit an employee from working within the same industry or for specific competitors. This information must be clearly delineated.
- Compensation in Case of Breach – Every agreement should provide a remedy for its breach.
If you need assistance in crafting an effective non-compete agreement for your business, contact us today to set up a time for a consultation.