Noncompete agreements: Only as effective as they
are enforceable
Noncompete agreements are hard to enforce. Many courts perceive them as
attempts to limit an individual's ability to obtain employment--therefore, most courts
will insist that a noncompete agreement be reasonably limited in geographic scope and
duration. To ensure that your noncompete clause or agreement is enforceable:
- Have your attorney write the agreement. If you ever
have to enforce this document, it will be closely scrutinized by the courts.
- Make sure it follows your state's law. Many states
limit enforcement of noncompete agreements. Be sure to research applicable state law
before drafting the document.
- Relate the restrictions to what the company seeks to
protect. If the time and geographic restrictions are too long or too broad, the agreement
most likely will not be enforced.
Give something in exchange. Sufficient consideration (compensation) for an employee
signing the agreement is necessary to make the agreement stick. If the agreement is part
of the hiring process, giving the employee the job is sufficient consideration. If the
agreement is signed later on, the promise of a raise or a promotion is probably
sufficient. Have it drawn as narrowly as possible. Define the company's protectable
interest. Be specific in terms of equipment, information, technology, strategy, sales
prospects, and other pertinent information that you consider proprietary.
Treat your trade secrets confidentially. If you want to convince a court that your
trade information must be kept confidential, treat is as such in your business. Keep the
information in a secure place, giving employees access on a need-to-know basis only.
Do not selectively use or enforce such agreements. Make all similarly situated
employees sign them. All employees should be made to comply with any agreements that they
sign.
Check if new hires have signed noncompetes. Consider having new employees sign a
statement that says they are not bound by a conflicting noncompete contract with another
company.
Noncompetes are corporate prenuptial agreements
Noncompete agreements are contracts that attempt to restrict--for a certain length of
time--an employee's ability to leave his or her employer and perform a similar job for a
competitor or set up a competing business. Noncompetes are used by many companies to
encourage key employees to remain with the company and to prevent them from competing with
it after they leave.
Who should sign noncompete agreements?
Noncompete agreements are not necessary for all employees. A receptionist may not have
access to any sensitive information, so you shouldn't ask him or her to sign one.
Employees who should be asked to sign noncompete agreements are:
- Employees who are involved in research or
product-development work.
- Employees who do creative work related to trade names,
advertising, broadcasting, and sales-promotion material.
- Sales/service employees who suggest solutions to
customer complaints.
- Administrative employees who process details relating
to any experimental, inventive, or creative work.
- Employees who service machines, equipment and similar
products made or sold by your organization.
- Manufacturing, maintenance, and production department
heads who have substantial supervisory authority over the manufacture or production of
machines and products made by your organization.
- Employees who have enough information about your
company to be able to start up a similar competing business.
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