A Guide to Non-Compete Agreements

It makes sense for a company to hire the best people and, of course, when a new company starts up, where better to look for those people than the staff of your strongest competitors?

Of course, this is all well and good when you’re the company gaining talent, but how do you avoid becoming the company that’s losing it? How do you avoid investing time, money and resources in an individual, only for them to be poached by another company who goes on to reap the rewards?

The answer is simple: A non-compete agreement.

What is a Non-Compete Agreement?

When an employer wants to prevent an employee from working for a competitor, they can use a non-compete agreement to stipulate a time period and/or geographical area that a former employee cannot work within.
Common features of a non-compete agreement include clauses that prevent an employee from:

  • Working with a competitor
    – Within a given time period
    – Within a given geographical radius
  • Attempting to entice former co-workers to follow them to their new employer
    Passing confidential information or intellectual property to their new employer

Where Can I Get a Non-Compete Agreement?

While it would have historically been commonplace to directly employ the services of a legal professional to draw-up a non-compete agreement, many such template agreements are now available online from sites such as Docsketch.com and have been created (and approved) by legal experts.

These simple agreement templates can be quickly and easily customized, depending on your needs and the nature of your business and include sections relating to:

  • Confidential information
  • Non-compete clauses
  • Agreement periods

Are Non-Compete Agreements Always Appropriate?
Not in all instances, no.

Non-compete agreements should be used to protect against genuine risks and threats, examples of which might include:

  • Board members
  • Senior management
  • Sales executives

There are going to be large portions of your (more general and junior) workforce for whom they would be both inappropriate and a waste of time.

Do I Really Need One?
In short, yes.

Your employees are the face of your business and they build relationships with partners and clients and often repeat custom is the product of such relationships. People buy people, and people are transferrable.

If your company and another strive to offer a similar product or service, a variable like a point of contact can make the difference as to whether a client stays or goes elsewhere. So, when Joe from sales moves to the pencil factory across town, what’s to stop the client continuing to buy their pencils from Joe? A non-compete agreement.

Non-compete agreements make an employee think twice before leaving and make it more difficult for a competitor to steal your strongest members of staff (and, by extension, your client list).

Can I Insist That My Employee Signs?

Depending on the territory (or territories) in which your company operates, non-compete agreements may be legal and enforceable but you cannot force your employee to sign one.

You can, however, make the signing of a non-compete agreement a condition of employment and an employee’s (or prospective employee’s) refusal to do so would render them ineligible for the role.

To summarise: You should never underestimate the importance of your employees, what they bring to your company and how much your competitors want to take them away from you. Bear in mind how badly you want to poach your biggest competitor’s best people and that somewhere, someone else is looking at yours.

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