What is a Non-Compete Agreement?

Your employee has the right to leave your job and pursue another venture. But what if your employee comes into direct competition with you in his new venture? There is a way that you can employ to prevent this mishap. You can protect your business by having your employees sign a non-compete agreement while hiring them.

It is a legitimate document that prevents an individual or entity from competing with another party. It is commonly used because sensitive information (such as trade secrets) about the business is exposed to employees, contractors, and consultants. Such information can be later used against the employer to create a business.

The non-compete document prohibits the individual from working in the same field for a set time or indefinite period. However, its validity and enforcement differ from state to state, and the former employer may have to pay a basic salary to the ex-employee until he agrees.

Before you make your employee sign it, learn more about its working and important things to include in a non-compete agreement

The strategy of this agreement

A non-compete agreement is a formal contract to limit the employee’s ability to compete with the employer. It is also known as a restrictive covenant or non-competence clause. It limits the employee to start their venture in the same field for a certain period of time.

Business owners have to work day and night and spend a lot of money building partnerships and developing their reputation, customer base, and property. They want to make sure that their employees would not misuse their secret information, steal their customers and start the same business without any hard work.

The non-compete agreement ensures that your business is protected from all such worries.

It is commonly used in the media industry to limit their hired persons working in rival media stations. The information technology sector also uses it as their employees have valuable proprietary information. The financial sector, corporates companies, and manufacturing companies also use it commonly.

How does the Non-Compete agreement work?

When a non-compete agreement is added to the employment contract, the employer commits to hiring the employees, and employees commit to not compete in the employer’s business field during the job and after the termination.

It prevents the employees from working in a specific geographical location and for a specified period of time.

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Enforcement of Non-Compete agreements

Most of the time, even after your employees sign the contract, enforcing the agreement isn’t easy. Employees often challenge the agreement in court and holding it becomes problematic. It is advisable to keenly look into your state laws, public policy, and other protective measures.

For example, it cannot be enforced in North Dakota and Oklahoma. California also does not recognize this kind of document, and the employer can be sued for binding the employee in this agreement. It is also banned in Hawaii for high-tech companies, and Utah limits it to one year only. 

In most states, they adopt the notion that it shouldn’t be too strict in terms of geographic limits, time limits, and employment limits.

The employer must think of offering incentives or some other considerations before having the employee sign the contract. This increases the chances of agreement enforcement.

However, if the employee violates the contract, the employer can seek litigation, but it also depends on the state laws. Therefore, always pay close attention to your state laws before binding the contract.

Things you need to include in a Non-Compete agreement

Include the following things in your agreement:

  • State the effective date and length of the contract
  • Specify the nature and reason of the agreement
  • Specify the location covered in the agreement
  • Details of compensation offered to the employee
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