As your business grows, you’ll eventually need to involve at least one other person. Whether it’s a freelancer, your first full-time hire, or a trusted colleague, that other person will inevitably put you in a vulnerable position. For instance, they may get to know your clients or learn top-secret information about what makes your business unique.
A signed document can help. Before someone gains access to that critical information, you can hand over an agreement that says they won’t share private information with competitors, start up or work for a competing business, or poach your clients or employees. Both non-solicitation and non-compete agreements can give you a small amount of protection, but they each have unique benefits.
Function
A non-compete agreement keeps signors from competing with your business in any way. This can include going to work for competitors or starting a business that is in direct competition with your own. A non-solicitation agreement, on the other hand, prohibits those signing from reaching out to your clients, employees, and other interested parties and asking them to do business with them.
Application
Both non-compete and non-solicitation agreements tend to appear as clauses in other documents. Often, they’ll be wrapped up in a larger document called a Non-Disclosure Agreement, but you can instead have them signed separately. In some cases, non-compete and non-solicitation clauses are included as part of termination paperwork, perhaps as a condition of receiving severance pay. NDAs, as well as non-compete and non-solicitation agreements may be given to employees, business partners, independent contractors, or any other party who might gain information that would put your business secrets at risk.
Enforceability
Chances are, you’ll never have to put your agreement through the court system. But your workers can easily research the enforceability of any agreement they sign, so the better legal standing it has, the more likely they won’t break it. Non-solicitation agreements will likely perform more favorably than non-competes in court because they aren’t as likely to restrict a professional’s ability to work. For best results, though, narrow the scope as much as possible by industry, time limit, and geographical location. The enforceability of these clauses varies from one jurisdiction to another, so be sure to check local laws before you make your document official.
Although you can find templates online that will give you the verbiage you need to put these clauses in place, it’s important to ensure they’re written in an enforceable way. Legal counsel can at least tighten up your wording and suggest ways you can narrow the scope to make sure it makes it through the courts, if it comes to that.
