Non-competition agreements are a standard part of some contracts between employees and employers. They state that employees cannot use information learned from working for the employer in the service of another employer for a set period of time after leaving the first workplace. While more common in industries such as technology and engineering, non-competition agreements are far from widespread. While they can provide the employer with some distinct advantages, there are limits to what they can do. Furthermore, non-competition agreements that are too broad or poorly worded are difficult, if not impossible, to enforce. Here is what you need to know if you are thinking about incorporating non-competition agreements into your paperwork for new hires.
Why Choose Non-Competition Agreements?
Non-competition agreements are designed to protect sensitive information and trade secrets from being passed around a given industry indiscriminately. While they are most often used in fields related to science and engineering, in which new discoveries can help one company stay ahead of the competition, they may be used in almost any field in which an employer has something he or she feels needs to be protected. In a competitive field, a non-compete agreement can help you keep your edge and allow you to keep information and processes exclusive to your business for longer.
Protection of Business Interests
In most jurisdictions, non-competition agreements can only be used to protect legitimate business interests. While the definition of what is legitimate can vary wildly, and is often up to the courts to decide in specific circumstances, it generally means that these agreements can only be used to protect information or assets that represent a significant financial gain for the company. They cannot be used as a means of limiting employment options for employees who have quit, or otherwise punishing former workers who are now looking for a new job.
Non-Competition Agreement Requirements
The main requirement of a non-competition agreement is that it is reasonable with regard to the employee’s future employment prospects, as well as the business interests of the company. Striking the ideal balance can sometimes be tricky, but there are usually three main factors to consider:
- Duration: The agreement not to compete can only last a certain length of time after the employee has left to seek alternate employment. Reasonable duration is generally determined on a case-by-case basis. For example, an agreement designed to protect an important scientific discovery might be valid for as long as the information gained from that discovery has value. A non-competition agreement for a media personality might have a duration that extends through the end of that person’s contract, but not longer.
- Scope: Another important consideration is scope of the agreement. For example, a non-competition agreement that prevents employees from seeking any other employment is probably not enforceable. However, one that prevents employees from seeking employment in the exact same type of position, for a direct competitor that is likely to want the information the employee has is much more likely to hold up in court.
- Location: In many industries, it is not common practice to restrict the geographic area in which former workers can seek new employment. However, for some businesses it is an important consideration. Media personalities, for example, may be restricted from working in the same broadcasting market for a set period of time after leaving a particular job.
In many instances, non-competition agreements require very specific wording and content in order to be enforceable after the fact. It is generally a good idea to consult a lawyer familiar with contract law in your jurisdiction before attempting to insert any such clause into an employee contract. Without proper consideration, you may end up with a bunch of empty verbiage that is unlikely to hold up in court.
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