In today's job market, employees making frequent job changes, as well as changing companies, has become commonplace. Non compete agreement are typically used to protect employers from having trade secrets exposed when an employee leaves the company. But how enforceable are these agreements? An employer can have a better chance of protecting themselves and their business by creating non compete agreements that are more specific and reasonable.
Here are five questions to consider when creating and implementing these types of agreements.
- Did the employee enter into the agreement before being or after being hired? This is important because if the employee signed an agreement conditionally as part of being hired, the employee is receiving something in return for signing the agreement. However, if the employee is asked to sign such an agreement after being hired, there may be a question of "consideration" or what is in it for them.
- Are the restrictions of the agreement legitimate? Areas covered and listed in a non compete agreement should be things which are considered necessary to protect the competitive edge of the employer.
- Is the time frame reasonable? Some contracts include clauses which state that the employee may not ever go to a competitor and do the type of work they were hired for at your company. On the other hand, it may be acceptable to state that the employee might be restricted from working for a competitor for six months or for one year after leaving your employment.
- Is the agreement reasonable in its locale restrictions? In other words, does the scope of the agreement include parameters that focus the non compete on a certain location surrounding the business? It may be considered unreasonable, for example, to include a clause that says the employee cannot enter into this type of business anywhere in the world. However, it may be considered reasonable to state that the employee cannot do this type of work with 50 miles of New York City.
- What happens if the business is sold? If you sell your business, will the non compete agreement transfer to the new owner? Conversely, if you purchase a business from someone else, you should obtain a non compete agreement from the seller.
To protect your business, consult with a business contract lawyer and have your documents reviewed before implementing them. If you are already in the middle of a dispute over a non compete clause in a contract, a business law attorney can review the case and assist you in defending your interests.