Today, a non-compete agreement is a common addition to most employment contracts. Read on to find out how it can help your business!
Non-compete agreements are legal contracts that prohibit employees from working with their employers’ rivals after their employment ends. In today’s employment contracts, non-compete agreements are quite common. These agreements are signed between the employee and the employer at the time of recruitment.
What Is A Non-Compete Agreement?
A non-compete clause, often known as a non-compete agreement, is a legal agreement that prohibits an employee from working for an employer’s rival once their current employment has terminated. These contracts have specific clauses stating that an employee cannot work for a business or organisation that directly competes with the employer, conducts business in the same segment of the market, or offers the same range of products and services. Some non-compete agreements are more rigorous and prohibit an employee from working for any other business in the same region and industry for a predetermined amount of time.The fundamental objective of a non-compete agreement is to prevent an employee from disclosing trade secrets and sensitive information to a competitor. However, non-compete agreements are usually signed even when an employee doesn’t have any confidential material or would have nothing to disclose in terms of trade secrets.
Which Industries Can Use Non-Competition Agreements?
Non-competition agreements or clauses are generally applicable in the business world. These clauses are also used in some specific industries. Such as:
- IT or Information Technology
- Media
- Manufacturing
- Banking & Finance
What Are The Components Of Non-Compete Agreements?
Non-compete agreements or clauses are usually not standardized. However, most of the NCAs have similar kinds of components. Some of the NCA components include:
Duration
NCA (non-compete agreements) are usually valid for a specific duration, such as 10 months or 1 year. Long-term agreements are extremely restrictive for employees as they are unable to accept employment in other companies within the same field.
Geography
Some of the Non-Compete agreements restrict on working within a specific location, which prohibits a former employee from taking up jobs in some areas for a specific period of time.
Scope
A non-compete agreement needs to clarify the type of service or work that a former employee cannot provide. These agreements often contain information, procedures, practices, and techniques that are proprietary or exclusive to the business.
Competitors
A non-compete agreement needs to specify its competitors in the agreement. The employer doesn’t need to add them all, but it needs to provide the employees with general information about the types of businesses and industries that they need to avoid.
Damages
Employers need to elaborate on the damages that they are authorized to do if an employee breaks the agreement.
What Are The Benefits Of A Non-Compete Agreement?
A non-compete agreement prevents your employees from taking advantage of your company’s data and business essentials. Most companies strive to safeguard their trade secrets from getting revealed by former investors, owners, and employees through certain restrictions stipulated in the agreement. Here are some of the benefits of non-compete agreement:
Non-Compete Agreements Protect Trade Secrets
One of the main benefits of non-compete agreements is that they safeguard your trade secrets. A trade secret can be a product, method, program, pattern, formula, or technique that is being kept secret within the company.
When an employer shares this type of confidential information, it is essential to maintain its confidentiality by applying a non-disclosure agreement. But non-disclosure agreements are not enough when a former employee decides to work for a competitor.
By integrating a non-compete agreement with a non-disclosure agreement, you can restrict your employees from disclosing your confidential information.
Non-Compete Clauses Help To Retain Employees
When you apply for a non-compete agreement, your employees may be less likely to quit their jobs. You can also put a payback clause in the contract. This would require the employees to compensate for the training costs if they quit their jobs before the specified period of time.
What Are The Disadvantages Of A Non-Compete Agreement?
Non-Compete Agreements Come With Limitations
Some of the states needs the employer to maintain some limitations while applying for a non-compete agreement because of the law. These limitations include geographic locations, the scope of the subject matter, and a reasonable period of time. They are normally held to be reasonable when the stipulated period of time is less than three years, but ultimately, the ex-employee will be allowed to work with a competitor after a certain point in time.
Non-Compete Agreements Can Be A Turn-Off
Your talented employees or high-performing candidates might not like the idea of signing a non-compete clause. They might prefer to work for a company that would not impose these kinds of restrictions. Therefore, the condition of signing a non-compete agreement can make you lose your existing employees or potential candidates.
Non-Compete Clauses Can Be Expensive
When it comes to enforcing any kind of contract, you might have to take legal action against the breaching party. However, if you fail to establish damages or if the ex-employee fails to pay a judgment, then you might waste a great deal of energy and time to gain a worthless victory. This is why it is essential to weigh the expenses against the advantages of a non-compete agreement before you start litigation with an attorney.
How To Write A Non-Compete Agreement?
If you are looking forward to writing a non-compete agreement for your company, there are some specific steps that you can follow to make your non-compete clauses more effective. These tips include:
Follow The State Laws
It is very essential to follow your state’s laws while developing a non-compete agreement. Some places, like California and Texas, don’t allow imposing such types of agreements on employees and they do not support those agreements that have disputes in them. Let your competitors or employees know about your non-compete policy.
Ensure The Agreement Is Not Too Much Restrictive
A non-compete agreement uses a lot of restrictions to prevent your employees from disclosing your company’s secrets.. This way, you might end up losing your best candidates or talented employees. This is why it is important to ensure that you don’t add too many restrictions in the agreement but still safeguard important information about the company.
Remind Your Employees Of The Contract
If an employee of your company tries to quit the job, remind them of the non-compete agreement they signed at the start of the job and that they must check the agreement for any complications.
Conclusion
A non-compete agreement prevents the employee from revealing confidential information and gaining a competitive advantage against their ex-employers. Using a non-compete agreement can help to protect your trade secrets. However, you might not want to make it too restrictive. Otherwise, it can make you lose your existing employees or potential candidates. If you are also an employers who wants to protect the sensitive information of your company from being disclosed by your ex-employees, in the future, our experienced team of legal experts at Vakilsearch can help you draft a non-compete agreement without any hassles!
Also, Read:
