?Company secrets and valuable business knowledge can be protected by noncompete
agreements between employers and their employees. These contracts or clauses are
legal agreements that dictate what company information can and can't be used by
current or former employees. Non-compete agreements are more necessary today than
ever because of advancing technology. Client information, company-specific software
and intellectual property available to employees need the protection afforded by
successful noncompete agreements. The trick is creating an agreement that is
enforceable. An enforceable agreement contains the following characteristics:
1. The agreement has reasonable terms for both the employer and employee
2. It contains precise wording that specifies what exactly is protected
3. It is signed by all applicable employees, preferably upon hiring
4. It pays attention to specific state guidelines as to what can and cannot be protected
Make sure you have a concrete, legal agreement to present to employees that will
guard your company's valuable information.
The best contacts and resources to help you get it done
Choose an applicable type of agreement
There are four basic types of noncompete agreements. The classic noncompetition
agreement forbids an employee from working for a competitor or directly competing
against the employer after termination. Nonsolicitation agreements prevent employees
from otherwise soliciting the employer's clients. Nondisclosure and confidentiality
agreements deal more with intellectual property and promise that information learned
will remain secret. Confidentiality refers to the employer's discretion as well.
I recommend: Begin with a LawDepot sample noncompete agreement. See if the
sample fits your business and modify as necessary. Other sample forms are available
at CCH, SmartBiz.com, Envision SBS and Internet Legal Research Group.
Be specific about what is protected
Noncompete agreements protect trade secrets; for example, information that is not
general knowledge or is specific to your company. Broad statements about "company
information" do not hold up well in court. Specific examples of hardware, client lists
or blueprints make an agreement that is easier to protect.
I recommend: While drafting your agreement, refer to My Employment Lawyer or
MedLawPlus for frequently asked questions.
Consider duration and penalties
Thou shalt never compete until the end of time is an unreasonable noncompete
agreement. Enforceable noncompete agreements usually cover one to three years after
the term of employment. A successful agreement is reasonable in duration and scope,
and is beneficial to both employee and employer.
I recommend: State-specific legal forms at LawGuru outline what guidelines apply to
noncompete agreements in your home state. Use this information to draft a fair and
Make sure applicable parties sign the agreement
Not all employees need to sign a noncompete agreement. Mailroom clerks with no
access to valuable information do not need to sign an agreement. If the head of IT (or
other employees with access to trade secrets) does not sign an agreement, however,
you can take no action against them if they use your company's knowledge against
you in the future.
I recommend: Learn who needs to sign noncompete agreements and what exactly they
are prevented from doing at the Free Advice website. A general rule is to present the
agreement to employees who have enough company information to quit and start up a
rival business against you.
Tips & Tactics
Helpful advice for making the most of this Guide
* Though noncompete agreements were initially popular with mostly high-tech
companies, today they are relevant in numerous industries.
* A noncompete agreement does not uniquely consider employees. A successful
agreement protects employers and employees alike, preventing damaging lawsuits.
* A good relationship with your employees goes far toward building trust, which is
the best way to ensure the success of your agreement.
* Have a lawyer draft the agreement, or at least look it over. Noncompete
agreements can be unpopular with certain state courts and difficult to enforce.
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The official source of Noncompete Agreements is the Noncompete Agreements page