A non-compete agreement (also called non-solicitation agreement or non-disclosure agreement) is a contract between an employer and an employee, that prohibits an employee from working for a competitor, stealing the company’s trade secrets, sharing the company’s marketing information, revealing upcoming products, or stealing the company’s customer list, in the event of termination or resignation at that company. A non-compete is typically used as a condition of employment and should be signed prior to the employee starting work at the company.
Each non-compete should be specific to each company’s unique needs, however each state has its own laws, so the employment law attorneys at JUX ensure they draft non-compete agreements that are compliant with the law. A non-compete should not be too broad, otherwise the courts might deem it unreasonable or unenforceable.
A non-compete agreement can be its own separate document, or part of other employment contracts such as confidentiality agreement, employment agreement, or an independent contractor agreement. In order for a non-compete to be enforceable it must include consideration. Consideration occurs when the employee has received something valuable (typically employment and/or extra compensation) in exchange of signing the non-compete agreement.
The main components of a non-compete are:
- Time period in which the non-compete is enforceable (typically 1-3 years)
- Scope of activities that are prohibited (ie: slander of the company, employment at a competitor, soliciting customers, etc.)
- The geographical area that is restricted
By hiring a business attorney, they will ensure that they draft a non-compete agreement that is enforceable, but will also follow the litigation process if necessary, to get a favorable outcome for the business owner when a non-compete agreement has been violated by an employee, or when it is deemed unenforceable or unreasonable. Some of the most common reasons for non-competes to be deemed unenforceable are listed below.
- The duration is unreasonable
- The employee accepted the position prior to knowing about the non-compete
- The non-compete is too broad
- The employee never signed the non-compete agreement
- The employer has wrongfully terminated the employee or was terminated for poor performance
- The employee has not received valuable consideration that was agreed upon
- The employer has breached the contract
A non-compete agreement is one of the most important ways an employer can protect their business interests, client list, and confidential information.