A non-compete agreement is a clause within a contract between employee and employer. This clause is a promise by the employee to not engage in any activity that is in competition with the employer’s business. This agreement could include various prohibitions, including, but not limited to: (i) applying for work in a competitor company; (ii) sharing trade secrets; (iii) formulas; (iv) sensitive information; and/or (v) engaging in activities that compete with the employer. In other words, the non-compete agreement is normally designed to protect the business of the employer in exchange for providing the employee employment with the company.
Non-compete agreements are a vital tool in today’s ultra-competitive business world. They are used as a means to retaining key employees, protecting confidential information and preserving valuable customer accounts. The concept is quite simple. An employee agrees that, for a specified period of time after leaving the employer, s/he will not compete with – or work for – a competitor of the employer. For example, a non-compete clause will routinely provide that an employee will be prohibited from competing directly or indirectly with his employer, or working for a competitor, within a reasonable geography, for a reasonable amount of time, following the termination of employment with his former employer.
The business advantage of a non-compete agreement is undeniable. Indeed, the mere existence of a solid non-competition agreement can often discourage employees from seriously exploring a jump to a competitor, therefore, saving the current employer untold time and money. An employee who thinks that a court may keep him from successfully landing with a new employer, may not risk the change in employment. Likewise, the presence of such an agreement may discourage competitors from raiding a company’s staff and stealing away an employer’s most valuable resources. These days, one of the first questions a savvy recruiter will ask is whether a prospect has signed a non-competition agreement. For obvious reasons, few businesses want to become engaged in expensive and drawn out litigation as part of the hiring process – especially if the agreement looks enforceable.
Although non-competition agreements can be quite valuable, they can be problematic. For example, if you let one person get away with ignoring the agreement, will it lose its force and be ignored by others? Moreover, if you don’t enforce the agreement, or only do so sporadically, will a court conclude that, since your company apparently does not consider the agreement necessary, that its restrictions to be unnecessary and unreasonable?
Although non-competition agreements can be valuable tools, they can become tricky if not properly utilized. As such, their drafting, and/or enforcement, should always be performed with the assistance of an attorney.