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Tips for creating an enforceable non-compete agreement

Non-compete agreements are pretty much exactly what they sound like; a clause in an employment contract that states that the employee, upon termination, will not start or work for a rival company. Employers typically have a variety of valid reasons for asking a potential employee to sign a non-compete.

One important reason is that in today’s fast-changing and extremely mobile world, employers do not want an employee to learn all their company’s secrets, only to jump ship and share those secrets with a competitor. Coca-Cola, for instance, would not want one of its top-level executives to leave and promptly share everything he or she knows with Pepsi-Cola.

The trouble is that non-compete agreements are not always easy to enforce. California has even banned them outright. Here are three points to consider to help avoid non-compete agreement disputes:

  1. Have a valid reason for wanting a non-compete agreement. Asking a potential employee who will have extensive access to trade secrets makes logical business sense and can help you protect the sanctity of your business. Asking employees to sign one simply because you feel they shouldn’t work for anyone else in your industry if they choose to leave your company can be viewed as punitive and may make the agreement unenforceable.
  2. Ensure the employee receives something in return. This is simple for new hires. The employee gets a job in exchange for signing the non-compete. If, however, you are asking current employees to sign one, they need to receive some benefit in return. For example, you might tell an employee that he needs to sign a non-compete in order to be promoted to an executive position.
  3. Make the non-compete agreement reasonable. Non-compete agreements that don’t have reasonable end dates and put unreasonable restrictions on the geographic areas covered by the non-compete may not be enforceable in court.

Non-compete agreements can provide corporations with a valuable tool for protecting their secrets and for helping to limit turnover at the higher levels of management. If done improperly or for the wrong reasons, they may prove to be completely unenforceable. It is always a smart decision to ask a business lawyer to help you draft a reasonable and enforceable non-compete agreement.