If you are a business owner and you are concerned about your business partners or valued employees leaving and taking your customers or your trade secrets with them, then you need to include a covenant not to compete clause in your employment contracts and partnership documents.

A covenant not to compete is another term for a non-compete agreement, and though those clauses have gotten a lot of bad press recently, they are still very useful for those who have legitimate business interests that they want to protect. The non-compete agreements that have been in the news have been written in a way that has been unreasonable in the way that they’ve prevented employees from seeking employment with another employer. A well-crafted covenant not to compete is clearly written to protect a business without being unreasonable or unfair to the employee or partner who is departing.

While there are certainly those who have used covenant not to compete clauses in a punitive way that locks employees into low-paying jobs, companies that truly need to prevent a partner or employee from damaging their business interests when they leave prepare documents that accomplish one of a few goals:

  • They prevent employees from selling within a specific geographic region that borders or overlaps with their own
  • They prevent those with inside information or industry interest from starting a similar business that competes with the original employer
  • They specifically prevent the departing employee or partner from taking customers with them, or soliciting their customers for their new business.

Each of these specifically addresses and tries to prevent a legitimate fear and threat to a business’ well-being and profitability. If, for example, a business sells to a specific industry within a local geographic area and a top salesperson leaves to go to a competitor, the original employer needs assurance that they will not use their knowledge of proprietary sales pitches or pricing to try to undercut their business.

Covenants not to compete are not open-ended: in order for them to be enforceable, their terms have to be both reasonable and limited: you cannot make it impossible for a person to make a living, or force them to move in order to get their next job.

Despite the abuse of covenant not to compete clauses, there are many situations where they are appropriate and necessary. If you need help creating documents that will secure your business’ sanctity, contact us today to set up a time to talk.