After losing too many valuable employees with intimate knowledge of their business to competitors, employers started creating and enforcing what are called “non-compete agreements.” These non-compete agreements, sometimes called restrictive covenants, essentially ban former employees from working under a direct competitor for a set length of time following their departure.
How Can a Non-Compete Clause Protect Your Company?
There are a variety of benefits to having a non-compete agreement with your employees. The first and possibly most beneficial of which being that it dissuades current employees from leaving the business. With a non-compete clause, an employee’s options after leaving your business would be restricted, which is a pretty good reason to stay.
Non-compete agreements also protect confidential information about your business, known as trade secrets. Trade secrets typically involve information that is not general knowledge and gives your business a competitive advantage. A former employee with this information would likely want to use it to his or her advantage when searching for a new job with a competitor, but a non-compete clause would legally bar them from doing so.
Also, a well-written non-compete clause would prevent former employees from going out on their own and starting their own competitor businesses.
Qualifications of Non-Compete Agreements
It is important to note that there are some restrictions as to what can be covered by a non-compete clause. For example, anything that could be considered common knowledge will likely fall outside the protection of a non-compete agreement.
The primary purpose of a non-compete agreement must not be to simply punish anyone who wants to leave your company. There has to be a justifiable reason for requiring a prospective employee to sign a non-compete agreement, such as trade secrets or a hard-won client list.
There should also be some benefit to the employee. There should be some kind of incentive for the employee to agree to the terms, such as a raise or promotion.
The requirements of a non-compete must also be within reason. Agreements that last too long, cover too much of a region, or restrict a former employee from working in too many places would not be reasonable.
Garland & Mason, L.L.C. – New Jersey business lawyers