A non-compete agreement refers to a legal document which restricts a business employee from working for the company’s competitor for a set duration of time in a specific geographical zone after leaving the organization. The time frame for the non-compete clauses might vary significantly, from around six months to one year or even longer. Most employers might require new employees to sign up non-compete contracts to maintain their position in the market. Examples of the people required to sign these contracts include employees, consultants, and independent contractors.
Why employers use employee non-compete agreements?
Non-compete contracts are usually enforced when a working relationship between an employee and an organization ends, and the business would like to prevent the former employee from competing against the company in their next position, regardless of whether they are working for the organization’s competitor in the market or starting up their firm in the same industry.
Employers might also seek non-compete contracts to protect themselves against their former employees revealing sensitive information or secrets about operations, customers, clients, formulas, strategy, pricing, methods, ideas, practices, future products, salary, or marketing and public relations strategies.
Non-compete agreements can also guard against employees taking clients and customers with them to their new employers or when beginning their own business as well as stealing company employees from their previous employers.
Basic terms of an employee non-compete agreement
Although every non-compete agreement is explicitly written for each employer, there are three main components each of them should include:
Standard non-compete agreements should be two years or less, but the most common is six months to one year. Long-term non-compete contracts rarely hold up in a court of law. They might also incorporate a severance option if an employee gets terminated from employment.
The local region where the organization does business is usually a reasonable determination when drafting a non-compete contract. Sometimes it may include a certain mile radius around the organization’s office address.
The scope clause should be exclusive when it comes to restricted jobs and specific services.
Free employee non-compete agreement templates
While companies would be properly served by hiring a business attorney to draft non-compete agreements specific to their unique needs, you can get many sample templates online for review. Many reputable websites provide free templates that you can easily download and then fill out at your pace. This method will simplify a couple of steps for you since the organization and validation of the documents are already taken care of. All you should do is prepare and key in the information needed by the template before an employee signs.
What to include in an employee non-compete agreement?
Generally, non-compete agreements should be both equitable and fair for all parties involved. They require specific information to be considered legal in a court of law. Here are the main components of a non-compete agreement.
- The names of the employee
- Names of the employer or organization
- An effective date when the contract will begin
- Reasons for enacting the contract
- Duration of the contract
- Jurisdiction of the agreement
- Terms of the restriction and the restricted jobs
- How the non-competing party will get compensated for consenting to the terms of the agreement
How to write a non-compete agreement?
• Research how your state law’s treats non-compete clauses
Normally, the law where an employee resides will apply. If you are not sure about the laws in your state, you should first consult a business attorney. These attorneys are always up-to-date with any current trends in the law and also understand how courts handle cases with such contract provisions.
• Provide valid considerations
Even though non-compete agreements are valid in your state, no agreement or contract can be legally enforced without consideration. If the non-compete clause is incorporated in an employment agreement, the employment offer normally provides consideration for the whole agreement, including the clause.
• Use the non-compete clause reasonably
You should analyze the position of all employees you request to sign non-compete clauses. Only utilize the clause for those employees who play a significant role in your organization and have unlimited access to company secrets and valuable information. Use the clause to protect your company, not to punish any employee for leaving.
• Outline the penalties in case of violation of the contract
You’ll have to go to a court of law to enforce the non-compete agreement, but outlining specific remedies and penalties in the clause might lessen the risks of having your lawsuits thrown out.
How enforceable is a non-compete agreement?
Non-compete agreements are not enforceable against company employees in some states, but in others, non-competes might be enforced. But it all depends on how reasonable a contract is and how restrictive it is in terms of the scope, time, and geography.
Do non-competes hold up in court?
Employers should meet particular criteria for non-compete agreements to hold up in courts. Generally, non-compete contracts are challenging when it comes to enforcement because they typically interfere with the ability of an individual to make a good living.
What is the standard description of the non-compete agreement?
A typical non-compete contract refers to an official agreement between an employee and an organization, which states that an employee cannot get involved in any form of employment position or business which are in conflict or competition with their current position in the organization.
Does a non-compete agreement need to be notarized?
Currently, there’s no common law that demands that non-compete contracts should be notarized. However, it must be signed by all the involved parties to be legally binding.
In what states are non-compete agreements banned?
Some states in the United States completely ban non-compete contracts for employees. These states include California, North Dakota, Oklahoma, and Montana.
Are an NDA and a non-compete agreement same?
A non-compete agreement and an NDA are not entirely the same. A non-disclosure agreement (NDA) is a confidentiality agreement put in place when a business employee is given unlimited access to sensitive information in a company.