Ideally, the people working for you today will keep working for you. However, nothing lasts forever, so chances are those employees will eventually walk out the door. When they do, what happens if they go to work for one of your competitors? How much of your business’s information could end up in the wrong hands?
Non-compete agreements are designed to protect your business against just such a situation. Either signed separately or included as a clause in a bigger contract, these legal agreements can come in handy. It’s important to learn as much as possible about non-competes before you put one in place.
They Need to Be Enforceable
The biggest issue with non-compete agreements is enforceability. In North Dakota, Oklahoma, and California, they aren’t enforceable at all, and California employers can even be sued for requiring workers to sign them. But even if you’re in a state where it can be legally enforced, courts still can tend to side with employees, especially if the agreement keeps them from being able to work in their own industry. The agreement should be reasonable, and it should be clear that such an agreement is necessary to protect your own business.
It Must Be Specific
A non-compete agreement that states that the person can’t work for “any competitor” after working with you likely won’t hold up in court. Who are your competitors? You need to be specific about the type of employer that is off limits. Courts have also stipulated that non-compete agreements should have a reasonable time limit and geographic boundary. If you run a local deli, for instance, you may not want your managers working for another deli in a ten-mile radius for a period of one year following leaving your restaurant.
The Timing Needs to Be Right
The best time to have your employees sign a non-compete agreement is at the start of your working arrangement. In the past, courts have seen employment as a reward for signing a non-compete agreement. But if you wait until months or years go by, you lose that reward factor. If you already have workers and you want to have them sign one, you can make up for that by offering an increase in salary or a bonus of some type.
It Can Apply to Terminations, Too
Often non-competes are designed to protect a business against an employee leaving for a competitor. However, non-competes can also apply to workers who were terminated. If the termination is ruled in court as due to misconduct on the employer’s part, the court will be more likely to side with the employee. However, even in situations where the termination wasn’t related to some sort of employer misconduct, courts will probably be less likely to uphold a non-compete than they would if the employee chose to leave.
The best way to ensure your non-compete agreement is valid is to have an attorney review it before you put it in place. Generally, once you have a good template, you can use this to sign on all of your employees moving forward, making that legal review well worth taking the extra time to do.