Are Non-Compete Clauses Legal And Enforceable?

As a business owner, you trust your employees with a lot of specialized information. If one of your workers were to go to a competitor, they might share some important business or trade secrets. So you've been thinking about having your employees -- current and future -- sign non-compete agreements to protect you and your business. What's the best way to do this?

Find Out What Legal Restrictions Exist on Non-Compete Clauses

Some states or local governments actually don't permit employers to have non-compete agreements for workers. Or, if there are no legal restrictions on having employees sign them, then there are issues with the state actually enforcing them.

Rather than adopt a generic no-compete contract, this is one area where it makes good sense to consult an experienced business attorney. He or she can give you more information on how non-compete agreements are typically handled in your jurisdiction -- or multiple jurisdictions, if you have more than one location -- and can customize the language in your agreement to make it more likely to hold up in court. 

What Are the Legal Requirements for a Non-Compete Agreement?

You will want to be careful with exactly what you prohibit a former employee from doing and for how long. Most court cases have not favored the employer if restrictions severely impacted a former worker's ability to find another job. 

It's important to include restrictions in your agreement that cover the geographical area affected and the length of time that the person cannot work for a competitor. It's rare to find an agreement that has a blanket ban on everywhere a person can reasonably work for life, as this is considered unreasonable by the courts. For example, you usually cannot prohibit a former employee from working for a competitor in a location where you do not do business.

You also must have a reasonable scope for your agreement. Specific trade information cannot be shared, but your everyday business practices cannot be held up as trade secrets.

How Should You Handle Agreements for Current Employees?

When you hire a new person and ask them to sign a non-compete agreement, the benefit to them is that they get a job. However, your existing workers already have jobs, and depending on your state, you may not be able to fire them for refusing to sign. 

In most situations, it makes sense to provide something of value to employees in exchange for having them sign. This makes the agreement appear valid and shows that it was willingly entered into by both parties. If any legal problem should ever come up due to the non-compete agreement, showing that you provide a promotion or a bonus in exchange for that agreement can strength your case.

What if a Former Employee Breaks the Agreement?

Even if you have your employees sign non-compete agreements that are reasonable in scope, area, and time, you still might find that a previous employee takes a position with another company that you consider to be infringing on that agreement. If you have created a reasonable agreement in scope, geographical area and duration, you may have a legitimate case against the employee, where they will have to pay damages for breaking the contract. 

In creating and enforcing your non-compete agreements, it's important that you consult a business lawyer for assistance. This ensures that your agreement can hold up in court if a problem gets that far. For more information, consider contacting a professional like those at Abom & Kutulakis LLP.