Trying to Protect Your Business? Here Are 3 Pieces of Advice About Non-Compete Agreements You Can Use

6 April 2017
 Categories: , Blog


In today's world, information is everything—which means you can watch everything you have walk right out the door if certain key employees take their services elsewhere. That's the reason that non-compete agreements have become so popular in both big and small business. Here's the catch, though: if you don't draft an enforceable non-compete agreement then the one you have might as well not exist for all the good it will do you. Here are some things that you should keep in mind.

1. Consider a non-disclosure agreement instead.

Not every jurisdiction will even allow non-compete agreements because they're seen as hindering an open economy. California, for example, has stopped allowing non-compete agreements on that basis. A non-disclosure agreement, however, may be allowable and serve your purposes quite well. A non-disclosure agreement is a contract that requires the employee to keep certain pieces of information you trusted him or her with during the ordinary course of his or her employment confidential.

They can protect, for example, trade secrets and client lists. If your former employer tries to set up shop using your trade secrets and stealing your clients with the promise of offering the same service only cheaper, faster, or better (knowing exactly how to undercut you) you can sue directly for both an injunction to stop it and damages to recover your losses.

2. Don't try to impose them on every employee.

Lower-level employees and less-skilled workers don't really need to be under a non-compete agreement and a judge may not think it is fair. For example, it isn't fair to put a prep cook whose entire job consisted of cutting food into the right-sized pieces and making sure everything was washed and ready to go under a non-compete agreement that will keep him or her out of the restaurant business for five years once he or she moves on to better things. Similarly, trying to put your average construction worker under a non-compete agreement just so he or she can't be poached by a better-paying rival isn't likely to be considered fair to the employee.

3. Make the conditions reasonable.

The more reasonable your restrictions, the more likely the court will consider them valid and enforceable. Think of it this way, six months to a year is a long time in the technology field, where information ages rapidly. Anything your former employee knew is likely to be old news and worthless after about a year's time. You also need to look at how specific your non-compete clause actually is.

For example, if you don't want your former student opening his or her own Tae Kwon Do dojo in the same geographic area that you operate, that's fine, but there's no reason to stop him or her from starting one in a different city. Similarly, if you want to stop your right-hand assistant in your wedding planning business from opening up a competing wedding planning business in your town, that's fair—but if you don't do children's birthday parties there's no reason to stop him or her from opening a business that caters to those people since they aren't your target market anyhow. 

Judges may sometimes just modify a non-compete agreement that they find unfair, but other times they'll invalidate the entire agreement—which could be a problem. That's more likely to happen if they think you were overly-broad simply to be vindictive or controlling. To avoid this type of problem, talk to a business litigation attorney and get help drafting an agreement that will stick. Services like Dunn, Martin, Miller & Heathcock, Ltd. can help.