Non-competition clauses are being used more and more frequently by employers as a method of controlling competition from employees and former employees. A non-compete clause (or NCC) is also sometimes called a covenant not to compete (or CNC). Basically, it is an agreement between an employer and an employee in which the employee agrees to refrain from engaging in any activity that competes with the employer’s business, either for a specified time period or within a specified geographical area. It can be used to prohibit a former employee from contacting an employer’s other employees or prohibit an employee from soliciting business from that employer’s client base. Its express purpose is to protect the employer’s business.
It can take years to develop good will and trade secrets within an industry. An employer has a right to protect against the possibility that an employee may use trade secrets learned on the job at another place of employment. Uncle Joe’s secret sauce is entitled to remain secret.
Here are some steps to consider when considering whether to use such an agreement. Because this type of agreement hampers an employee’s ability to make a living, courts tend to look at them carefully. They must be drawn up as narrowly as possible to achieve their purpose. First and foremost, consult with an attorney. Non-compete agreements are not enforceable in all states. An attorney can help you to determine if it can be used in your state and how best to draft one that will be enforceable. Attorneys can tailor a non-compete agreement to best protect an employer’s legitimate business interests while protecting an employee’s ability to work.
The needs of the employee will be balanced against the needs of the employer. Therefore, in drafting this agreement, your attorney will draft it as narrowly as possible to protect both. The agreement must be narrow and specific as to duration and scope. Scope can involve geography as well as type of business. If the employer does business in a specific geographic area, the non-compete clause may be limited to the area in which the employer does business. Additionally, the agreement may be limited to the type of industry in which the employer is involved. Finally, the agreement must be limited in time. Six months may be reasonable, but two years may be excessive.
The non-compete agreement must be supported by consideration in order to be considered valid under the law. The employee must be compensated for their agreement not to compete. If the agreement is signed prior to employment, the employment itself may be sufficient consideration. If it is signed during employment, additional consideration will need to be offered and accepted by the employee in order for the agreement to be valid.
Now you know a little more about What is a Non-Compete Agreement. This is a very technical part of the law and best handled by an attorney. If you are considering using a non-compete agreement, contact an attorney.