5 Mistakes to Avoid When Writing a Non-Compete Agreement

A non-compete agreement is a legal measure taken by one party, usually an employer, to protect itself from another party, usually an employee, from creating a similar business and competing with them. A non-compete agreement can be a full contract or clause within a contract aimed to protect the creator’s valuable trade secrets from being used by employees that choose to start a similar business after parting ways. Non-competes are popular but do not always serve their purpose if drafted improperly. There are 5 mistakes to avoid when writing a non-compete agreement.

Making Non-Compete Agreement Restrictions Unrealistic

A non-compete agreement restrictions should be realistic and reasonable. If needed to be disputed and revised by a court of law, having an unrealistic non-compete can easily backfire. For example, courts will not be inclined to enforce a non-compete that prohibits a worker of a particular trade from performing that trade for another company. Another example of an unreasonable ask in a non-compete agreement is that an employee may not start their own business in the same trade in different county or state. Unrealistic restrictions such as these will likely be considered unenforceable by the court and the dispute will be dismissed.

Not Matching the Non-Compete To The Job Position

Employees at different levels have more or less knowledge of and access to company trade secrets. Various positions may require separate agreements and the restrictions for each position may vary. It is best to create non-compete agreements to match each position even if that means having multiple versions of a non-compete. Having different types of non-compete agreements for different positions is far more recommended that having one agreement for all job positions. If needed to be disputed, they might be ruled out by the court for being unrealistic or for not defining the restrictions of each position property. For example, if an entry-level hire signs the same non-compete agreement as a high-level ranking employee and then goes on to compete in the same business industry, this entry-level employee can argue that he did not receive such trade secrets as the trade secrets were not given as part of his training and had nothing to do with his position. In this case, the court may find the agreement unenforceable if the definition of trade secrets on the agreement only applies to higher ranking positions.

Failing To Sign A New Non-Compete Agreement If An Employees Position Changes

Now, say a company does have different non-compete agreements for different positions in the company as all should and an employee receives a promotion that entails more knowledge of the way the company works, or more access to the company’s internal structure. This employee, upon receiving this promotion, should be asked to sign a new non-compete agreement where the restrictions perfectly match that new position. If not, if said employee decided to compete in the same or a similar trade, the company may find itself fighting a losing battle in court trying to enforce a contract that is not detailed enough or might not have to do with the issue at hand.

Not Accounting For Jurisdictional Differences

Multi-state companies and companies that work internationally sometimes make the mistake of making the same non-compete agreement for all of their locations. This might be less of a burden and perhaps even a lower cost to the company, but it can bring some trouble down the road if said agreement needs to be disputed. It is likely the case that this agreements restrictions will be considered too broad, as it was probably designed to be broad, because it did not account for jurisdictional differences. Making the same agreement for all locations can make some of its restrictions unrealistic and unenforceable since each state, city, and county has different statutes, regulations, and restrictions of their own relating to all industries. A successful, well-drafted non-compete agreement will be specific to the job position, property define each term relating to that position, have realistic time restrictions, and account for any jurisdictional statute or restriction.

Not Adding a Non-Soliciting Clause or Defining Soliciting Property

A non-soliciting clause prevents the competing party from soliciting current employees or customers of their previous employer. The addition of a non-soliciting clause to a non-compete agreement eliminates the possibility of a former employee starting a similar business, soliciting current employees and customers, and it also prevents the solicited employee from leaving since they would have also signed this contract. It is important to properly and specifically define all terms in a non-compete like the information being called a trade secret and solicitation. This is so that if issue ends up in court, the accused party cannot say that they did not solicit but rather was sought out by the other employee. If solicitation is defined, for example, as offering a job position to an employee while he or she still works for your company, that employee would have to first quit and then be offered the job. If not, both would be breaking their non-compete agreement and a court would rule in your favor.