A non-compete agreement (NCA) is a contract between an employee and employer. It prohibits the employee from working in a similar role for a competitor in a specified time period following cessation of employment. A non compete agreement is sometimes called a restrictive covenant or trade restraint. It is also required if you own a business and share your ideas or trade secrets with someone involved in the same field. It is basically a contract that states that one of the parties will not compete or help others compete with the other party. This type of agreement can be complex, and it often goes unread or is signed without proper understanding.
Should you have a non compete agreement?
To decide whether having a non-compete agreement is right for your business, you need to weigh the potential risks of not having one against the costs of implementing and enforcing one.
On the positive side, having a non-compete agreement can give you much-needed peace of mind that a former employee won’t start working for a competitor or start his own competing business. It can also help prevent trade secrets from being exposed to competitors.
One downside of having a non-compete agreement is that it can be expensive to implement and enforce. For example, it will cost money to have an attorney draft the agreement, which must then be presented to each employee who’s expected to sign it. The cost of enforcing the agreement through litigation can also be substantial. There’s also no guarantee that a court will uphold such an agreement if it decides that it was too broad or unreasonable in any other way.
Another potential downside is that some employers may be reluctant to hire job candidates who are bound by a non-compete agreement with their current employer because they don’t want to get caught up in litigation between the two companies. However, if you want to protect your trade secrets, consider having employees and contractors sign non-disclosure agreements. Non-compete agreements are appropriate when you want to protect not just information but your competitive edge.
Define what the prohibited conduct is.
When we draft a non-compete agreement at AIO Legal Services, we start by defining what the prohibited conduct is. This is an important step because it can make the difference between a non-compete that’s legally binding and one that isn’t. AIO always think about how a court would interpret the agreement. In general, courts will invalidate any non-compete agreement that is overly broad in scope. For example, an employer may prohibit an employee from opening up a competing business anywhere in the United States. This provision would likely be invalidated by a court because it leaves no room for the employee to earn a living anywhere in the country.
Similarly, courts will also invalidate any non-compete agreement that spans over an unreasonable period of time. While there are many factors that go into determining what constitutes an unreasonable period of time, you should generally not try to restrict an employee’s ability to compete against you for more than two years after their employment ends.
AIO Legal Services always consider that the non-compete agreement must have a lawful purpose that protects the legitimate business interest of the employer. It must also be reasonable in terms of the time and geographic scope of the restrictions imposed upon the employee. The specific terms should be defined with as much detail as possible when drafting such an agreement.
Specify whether the provisions will survive termination
When drafting a non-compete agreement, it’s important to specify whether the provisions will survive the termination of the contract. If not, then the non-compete terminates when the contract ends. But if it does survive the termination of the contract, then the non-compete survives and remains in effect even after the termination or expiration of the contract. Hard, right? Ok, in other words, When drafting a non-compete agreement, it’s important to specify when the provisions end. If the contract ends, does the non-compete still apply? If it does, the non-compete survives and remains in effect even after the contract ends.
Determine the duration of the non-compete agreement
While there is no set limit on the time period covered by a non-competition agreement, these agreements have to be reasonable. Typically, it is reasonable to require an employee not to work in competition with you for around two years. In some circumstances, such as when the employee has access to trade secrets or other highly confidential information, the agreement may remain in effect for up to five years. However, several jurisdictions consider non-compete agreements that last longer than two years to be unreasonable.
Establish a reasonable geographic restriction
Also, you should determine whether the geographic region covered by your non-compete agreement is reasonable. For example, if your company operates only in New York City and you require your employee not to compete with you anywhere including the UK, this would likely be considered unreasonable. When drafting a non-competition agreement, consider limiting it to a specific state or country where you do business.
Specify which country’s law will govern your agreement
One of the most important things you must specify is which country’s law will govern your agreement. Employers usually require employees to sign these agreements as a condition of employment. Laws that govern non-compete agreements vary depending on the state or country they are enforced in. Choosing the governing law that applies to both parties when drafting your agreement will help avoid disputes and delays in enforcement if a dispute arose.
Consult with a lawyer before signing your agreement
While there are resources available to help you write your non-compete agreement, it’s important to remember that these are legal contracts that can affect your employment for years to come. It’s always a good idea to consult with a lawyer before signing or agreeing to one. That way, you’ll have a better understanding of what the language in the agreement means and how it could be enforced against you if necessary. You also may be able to negotiate certain parts of the agreement prior to signing, such as the terms of the non-compete or the geographical area covered.
If you do decide to sign a non-compete and then change jobs, make sure your new employer is aware of it. They may be able to work something out with your former employer or delay your hiring until the non-compete has expired.
On the other hand, it is critical for employers to draft non-compete agreements in a way that minimises the chance that they will be found invalid by a court. Our advice to you is to try to use specific language. Don’t try to draft a “catch-all” agreement that covers every possible scenario; rather, use specific language that addresses the actual problems you foresee if your employee were to leave your company and start working for a competitor. For example, if you know of a particular client who has expressed interest in working with your employee upon his or her departure from the company, it is ok to mention that client by name in your agreement. Just be specific and concise. Also, try to consider that a non-compete agreement will not be enforceable in all circumstances. Do not solely rely on a non-compete agreement to protect your business from competitors. Your most valuable asset is your reputation. Good quality products and services, combined with good customer service and timely deliveries, will help you keep your customers more than a hundred agreements. However, if you need further assistance in drafting your non-compete agreement or any other agreement for your business, please contact AIO Legal Service using the details below:
aiothman@aiolawyers.com
aiolawyers@gmail.com