Whether you’re running a business or working as an employee, non-compete agreements will undoubtedly land on your radar at some point. Also known as a covenant not to compete, this agreement helps protect the company’s interests by restricting what the employee can say or do for a set amount of time. No matter which side of the equation you’re on, it’s important to understand what this contract entails. Thankfully, you can learn about non-compete agreements with a quick read of this guide.
What Are Non-Compete Agreements?
Non-compete agreements are legally binding contracts that companies use to restrict employees from launching a competing business within the given time frame. The contract helps protect the company’s trade secrets and other proprietary information that the workers might learn while on the job. The given time period can vary considerably, although a six-month to one-year restriction is often considered reasonable by courts.
Which Industries Use Non-Compete Agreements?
Non-compete agreements are not prevalent in all industries. Businesses with proprietary products, services, and processes tend to use them.
These contracts appear most often in the following industries:
However, many businesses use non-compete agreements as a matter of course, regardless of their field. If you’re not sure if you should use or sign this contract, check with a lawyer before moving forward.
What are the Non-Compete Agreement Pros and Cons?
Even if regularly used in your industry, it’s not always beneficial to use non-compete agreements. To see if it’s the best option for you, weigh the pros and cons, and then talk to a lawyer before making a decision.
- Protects the company from copycats
- Encourages innovation within the company
- Helps improve employee retention
- Only covers a limited area and length of time
- Must be enforced through court proceedings
- Limits employee mobility in the job market
In the end, you’ll have to choose what works best for your company or you as an employee, depending on which side of the equation you stand on.
Do Non-Compete Agreements Usually Hold Up in Court?
Non-compete agreements only hold up in court if the state recognizes them as valid. California, for example, does not honor non-compete agreements, while Florida could allow employers to outright fire employees for not signing them.
Even in states where non-compete agreements are valid, the terms must be reasonable and serve to protect a legitimate business interest or the court might not enforce the contract. For example, non-compete agreements are written for longer than two years of protection will not likely hold up in court as the duration may be deemed unreasonable. On top of that, the contract must only pertain to the direct area the company does business, not have a global scope. Furthermore, it needs to clearly define the protected industry, so employees can start a business in a different field if they so choose.
How Can I Create a Legally-Binding Non-Compete Agreement?
If you want to create truly legally binding non-compete agreements, it’s important to work with an attorney experienced in drafting contracts. Otherwise, the contract terms could end up unenforceable, leaving your proprietary info vulnerable to competitors.
When you have a local attorney draft up all your contacts, you can rest assured that they’ll stand up to intense scrutinization by the court. You can then move forward in hiring employees without worrying about them walking away with your trade secrets and using them to put your company out of business.
Should I Have Non-Compete Agreements Looked Over by a Lawyer?
Whenever you need to sign a contract for your employer or anyone else for that matter, always have the terms looked over by an experienced lawyer before you sign the agreement. This way you can make sure that you’re not signing a non-compete agreement or any other contract that will restrict your career growth or future prospects.
You can also get a direct rundown of all the terms in the agreement, so you can avoid accidentally breaching the contract. You can then work on accelerating your career without worrying about ending up on the wrong side of a lawsuit.