There are times in business when a non-compete agreement is an absolute must for the sake of all involved parties, though the actual agreement itself is the subject of much misunderstanding. From what it involves to the way in which it is both produced and enforced, it’s important to understand at least the basics in order to know when such an agreement might be called for.
In the simplest of terms, a non-compete agreement is the name given to a legal contracts signed between any employer and an employee. The document itself specifies the various terms and conditions by which the employee must abide and is issued at the time of their termination from their job. The main clause of the non-compete agreement is that the employee must not work with any competing business in the same industry for an agreed amount of time following their departure, which could be anything from six months to two years.
In terms of why exactly it is in the best interests of either party to go ahead with such an agreement, there are benefits to be had on both sides.
- Employer Benefits – The employer benefits from the protection that comes with their employee not being allowed to share any of their industry insights, experiences or trade secrets with another business they may choose to eventually work for. Employees often leave any given business with a great deal of knowledge and inside information that could be of huge value to rival businesses, so keeping it under lock and key is a good idea.
- Employee Benefits – As for the employee, their own benefit from the deal will be agreed between the two parties signing the non-compete agreement. Generally speaking this will take the form of some kind of monetary compensation, which means that they will be paid not to go to another company and not to share their knowledge. The value of each non-compete agreement varies in accordance with the value of the information and the departing employee.
Other Factors Covered By the Agreement
There are technically hundreds of things that could be covered by a non-compete agreement and literally every agreement ever created will be, to some extent, unique. It all comes down to the nature of the business, the departing employee, and what it is the business is trying to protect. For example, the non-compete agreement may specify that the employees is not able to poach any of the clients and customers of the business they are departing from. They may not be able to follow up any sales leads they built up during their time and may be asked not to contact any specified individuals that work within the business.
More often than not, the non-compete agreement will insist that the departing employee must not open a new business that’s in any way similar to that from which they recently departed. They may also be asked to refrain from selling similar products or services privately.
Legal Enforceability – Is There Any?
Exactly where the law stands on a non-compete agreement is a bit of a tricky matter. The document itself is as legally binding as it gets, but when and where a non-compete agreement is broken things can get a bit messy. For example, if and when there’s a situation in which the employee willingly breaks the contract, having fallen into the need to work and earn more money, the courts will generally favor the employee. If on the other hand the contract is breached deliberately and with no good reason other than pure greed, things may fall the way of the employer.
It may also be that further down the line one or more parties decides they’re not happy with the originally agreed terms of the non-compete agreement and therefore decides to break it. This is again where the specifics will be taken into the matter, but in most cases going back on an original agreement puts you in the position of blame.
Something else that can hugely complicate matters is the way in which there are some instances where a non-compete agreement may be agreed to but on the strict condition that it is kept 100% confidential and never, ever brought to the attention of others. Assuming there’s a dispute, it can then be difficult to involve the courts as to do so would be to further nullify the agreement.
Of course, the agreement can be ended at any time if both parties involved agree to do so.
Do I Need to Consider a Non-Compete Agreement For my Business?
Generally speaking, the non-compete agreement is seen as a tool by which to ensure that your ideas are not stolen, your secrets divulged and your employees poached by your rivals. As such, it’s a good idea to at least consider a non-compete agreement in an instance whereby:
- Any employee is leaving your business and you would not like them to immediately go work for one of your rivals
- An employee leaves and it’s in the interests of the business for them to be prevented from setting up their own business
- An employee knows trade secrets that could be sold to rivals for personal gain
- Two parties in business together are parting ways and one does not want the other to compete
In any of the above cases all parties involved are pretty much free to do anything they want to do unless a non-compete agreement is made. It’s basically your way of stipulating the terms and conditions attached to their imminent future as far as their business life is concerned.
Establishing the exact terms of the non-compete agreement is of course a tricky task to say the least and one best addressed with the help of a pro. It’s a case of working out exactly what it’s worth to you to either keep the employee away from your rivals or to prevent them setting out as a rival in their own right for any set period of time. You could pay them a lump sum of $10,000, you might want to pay them monthly or you could offer an incremental system that increases the longer they follow your rules – technically it’s entirely up to the both of you.