Non-compete agreements are often prepared as part of a simple employment contract,
and can be included as a separate document that is reviewed, agreed-upon, and signed at
the beginning of a new job. Essentially, the non-compete agreement makes sure that once
an employee leaves a position that they will not do anything that directly competes with
the company he or she just left. The non-compete agreement is generally an effective
means to ensure that former employees do not make use of proprietary information to lure
away customers and thus damage their former employer.
There are important requirements and regulations that we need to be aware of before
we present a non-complete agreement to this executive. First of all, most non-compete
agreements are prepared and presented at the beginning of new employment. As we have
already had a business relationship with this executive, we will likely not be able to have
him sign a new agreement. Furthermore, However, courts generally disapprove of non-
competition agreements as limitations on a former employee's right to earn a living.
Therefore, when made the subject of a legal dispute, non-competition agreements are
closely scrutinized in the court system.
If we were to draft a non-disclosure agreement, there are five important elements that
we need to be sure to include:
Definition of confidential information
Exclusions from confidential information
Obligations of receiving party
Time periods, and
Miscellaneous provisions (Nolo, 2011).
For instance, we need not disclose confidential information as part of our non-disclosure
agreemenet, but must clarify what type of information is to be kept private. An example of a
non-disclosure agreement may state, “Confidential information includes programming code,
financial information, related software materials and innovative processes.”
Each non-compete agreement will differ depending on the actual position and may be
subject to local laws depending on the local jurisdiction. In order to be considered valid, a
non-competition agreement must:
Be supported by consideration at the time it is signed;
Protect a legitimate business interest of the employer; and
Be reasonable in scope, geography, and time.
Interestingly, non-competition agreements must generally be supported by valid
consideration -- the employee must receive something of value in exchange for the promise
to refrain from competition. If an employee signs a non-competition agreement prior to
beginning employment, the employment itself will be sufficient consideration for the
promise not to compete. However, if an employee signs a non-competition agreement after
beginning employment, the mere promise of continued employment will not be considered
valid consideration for the promise. In this case, the employee must receive something else
of value in exchange for the promise. Such additional consideration may consist of a
promotion or other additional benefit that was not part of the original employment
agreement (Pollins, 2011). As previously mentioned, the courts look very closely at the
legality of non-compete agreements, especially when they have been negotiated after
employment has begun.
It is also critical that we be able to prove that Sheer and Deer took reasonable steps
to maintain the privacy of its information. In other words, we cannot simply enforce a non-
compete agreement if we have previously shared our information with other people and
corporations freely. Moreover, we need to be able to show that the non-compete agreement
be reasonable in duration and scope. For example, we cannot seek to enforce an agreement
for any length of time where our product no longer holds value. When we consider scope,
we need to show that the agreement was only a means to protect Sheer and Deer from
legitimate competition from rival companies.
Now, a non-disclosure agreement is not the only way to create a confidential
relationship. You can create a confidential relationship with an oral agreement or it can be
implied from the conduct of the parties. However, these relationships are much more
difficult to prove than a relationship based on a written agreement (Nolo, 2011).
It is imperative that we have excellent legal representation if we were to pursue this
as a possibility. However, hiring an attorney may be prohibitively expensive. If we consider
the costs, we may wonder why the fees are so costly, here are some points that have been
shared with me:
Raw emotion: Competitive disputes often result from a bad divorce among
employee and employer. A pure economic analysis of whether litigation makes
financial sense generally is not as critical of a factor as in other cases.
Speed: By definition, unfair competition cases have to move fast, particularly from
the plaintiff's perspective. A preliminary injunction trial can effectively decide many
issues in the case, which sometimes results in efficiency. Often times, however, it
results in multiple evidentiary hearings and several layers of fact discovery.
E-Discovery: Electronic discovery and the exploding volume of information
available to attorneys has made commercial litigation extraordinarily expensive,
especially for individual defendants. Projects such as document and privilege review
and metadata searches consume far more time than clients expect.
Proof of Damages: Proving liability is not nearly as difficult in competition cases as
establishing a legal basis for damages. Lost profits are especially hard to prove,
particularly in cases of indirect competition. Even cases of trade secrets
misappropriation are hard to quantify. Normally, expert witness testimony is
required for complicated damages analysis, resulting in higher fees and discovery
Number of Witnesses: In competition cases, there seem to be a lot of
knowledgeable witnesses. Think about co-workers, customers, vendors, and the
new employer. Numbers add up quickly, and interviewing or deposing those
witnesses is very costly (Vanko, 2011).
Mr. Ken Vanko has elucidated these points; he is a member at Clingen Callow & McLean,
LLC in Wheaton, Illinois. For example, a recent Florida case, which dealt with little more
than a breach of a no-hire agreement and relatively uncomplicated trade secrets
misappropriation claim following a sale of business, resulted in a fee petition of
$448,860.55. We definitely want to avoid costs of that magnitude!
Given these exhaustive details, we may wish to reconsider our decision to draft a
non-disclosure agreement for this executive. Although we ultimately do not want to lose
this top executive, we also do not wish to coerce or trick an employee in to signing an
agreement of this type. Furthermore, we do not want to pay for the extensive legal fees and
research that is part of this sort of document. Therefore, my suggestion is to avoid this path
in favor of a different, and less costly, path.
Nolo (2011) Nondisclosure Agreements. http://www.nolo.com/legal-
encyclopedia/article-29630.html. Last accessed January 17, 2011.
Pollins, S. (2011) Non-Competition Agreements: Overview.
loss/employment- employee-non-compete.html. Last accessed January 17, 2011.
Vanko, K. (2011) Fee Petition in Restrictive Covenant Case Approaches $500,000
(Marlite, Inc. v. Eckenrod). http://www.non-competes.com/ Last accessed January 17,