Business Law 101: The Importance of Non-compete Agreements

When hiring someone to a position where they will be given sensitive information, or provided with costly training, it is important to protect your business. If that person were to leave and either start their own competing company or begin working for a competitor, it could cause significant problems for your business. While it is not possible to prevent people from leaving a job, a non-compete agreement can help ensure they don’t take the knowledge or experience they were provided to a place where it could be used against you for a set period of time. Understanding exactly what non-compete agreements are and how they can protect your business is essential to your long term success.

Reasonable Restrictions

When asking an employee to sign a non-compete agreement, the agreement must have terms that are considered reasonable. You can’t, for example, state that the individual can’t work for a competing company for a period of 50 years. Depending on the industry, most courts have determined that somewhere between one and five years is generally acceptable. The other areas where these types of restrictions include:

  • Industry Restrictions – While you can ensure that your employee won’t work for a direct competitor, you can’t be overly broad in that definition. The more focused the restrictions on where someone can work, the more likely it is that the agreement is upheld in court.
  • Physical Location – You also can’t say that someone can’t work for another company in a related industry anywhere in the world. If your business serves all of Florida, for example, you can’t say that the person can’t leave for a job in the same industry that is located in Michigan.

Retaining Clients through Transition

In many industries, customers will work directly with one employee to get what they need. It is natural that they will build a good working relationship with that employee, so they may be tempted to follow them to their new company should they leave. Having a non-compete agreement ensures that the employee can’t take customers with them when they leave. Even a one year restriction on working within the industry will give your company the chance to transition customers to a new representative.

Protecting Company Secrets

One of the many benefits of having employees sign a non-compete agreement is that it will help ensure the protection of your company secrets. While other contracts can limit the risk of someone taking those secrets to another company, preventing them from working directly for a competitor can further reduce this possibility.

Creating & Reviewing Non-Compete Agreements

Non-compete agreements are only helpful to a business when they are enforceable under law. To ensure your agreements are enforceable, it is important that they are written by an attorney who has experience in business law. Having these agreements reviewed and updated on a regular basis can also help to avoid problems in the future. To have a strong non-compete agreement written up for your company, please contact the Reyes Law Group to schedule a consultation with an experienced business law attorney.

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Written by Reyes Law Group