Companies expend a considerable amount to provide pay for employees to develop their skills in a certain field. However, instances always arise when an employee who has become an expert chooses to resign from the company and seek a greener pasture. If the former employee ever chooses to work under a new employer that rivals the company, then it will become unfair for the company in a competitive sense, as it is under their expense that the employee got its skill. To prevent this from happening, employers make their employees sign a non-compete agreement.
A non-compete agreement samples is a legal contract that is enforced to prevent an employee from going into a business venture that will compete with their former employer. It is usually enforced by an employer when an employee is about to resign. For this article, we will get you covered in all the aspects involved in creating an effective non-compete agreement.
1. Competition: In a non-compete agreement, the employer must be able to clearly define what employee activities are considered competitive. The most common one being considered is the transfer to another company with a rival branding or product of the company.
2. Geographical Scope: This refers to the area where the restriction of the competitive activity is imposed. It would be an overboard for a non-compete agreement to ban an employee from competing in places where it is no longer within the employer’s geographical scope of interest, so the agreement must be able to specify these locations where competing is prohibited.
3. Duration: Non-compete agreements are not imposed indefinitely as businesses are always developing, and keeping a former employee, who knows about a trade secret or has a skill developed during his time at the company, from competing might not be relevant anymore. Your non-compete agreement must have a specific time period or duration on how long it will remain effective.
4. Injunctive Relief: The company needs to ensure that it can take legal actions once an employee is found to be breaching the agreement. With a provision that entitles the company to an injunctive relief, they will be able to impose penalties to compensate for losses incurred with each passing day that an employee benefits from competing.
5. Severance: A company might make an employee sign a non-compete agreement and terminates that employee thereafter. The non-compete agreement will still be in effect so the now ex-employee gets a very limited pool of prospective companies to work for. To prevent this corporate bullying and to ensure that the employee is treated fairly, a non-compete agreement must always include a severance provision that requires the company to provide compensation upon employee termination.
6. Consideration: This is not a provision but an important characteristic of your non-compete agreement. Countless companies have been struck down or have experienced prospective key employees walking away from them just because their non-compete agreement is too one-sided, meaning only the company gets all the benefit. A good non-compete agreement protects the company’s interests, sure, but it must also always consider if the employee is not being put in an unfair situation because of it.
1. Notes before writing your non-compete: It has been said before that a non-compete agreement can be turned down by the court if the contract is found out to be inconsiderate to the employee. So, throughout the process of writing your non-compete agreement, always keep in mind if it will considerably harm the welfare of your employee. Doing so will make non-compete agreement valid and enforceable.
2. Define competitive activities: You don’t want to prohibit former employees from engaging in too many types of businesses. Stick to activities that would only significantly harm your business. Some standard prohibited activities include soliciting the company’s clients, attempting to hire the company’s employees or encouraging other employees to leave, or competing with your business directly by starting a similar business.
3. Specify the geographical scope: The reasonableness of your geographic scope depends on a variety of factors, like the location of the existing competition and the type of industry practice. If you think that this area will not affect you in any way, then you should not include it.
4. Determining the duration: The typical amount of time that a non-compete runs is between one to two years. Take into account the period of the relevance of the knowledge that the former employee knows or the skills they have learned from company training, and determine how long it will stay relevant.
5. Including the injunctive relief: You would always want to include an injunctive relief to protect your company from financial strain upon the former employee’s non-conformance of the agreement. However, this provision seems to receive the highest rate of becoming unenforceable as most courts often find this too self-serving to the side of the company. Take caution in coming up with this provision that it would not sound too one-sided and explain your side on why it is necessary.
6. Coming up with the terms of severance: Lastly, indicate the compensation that you will be conferring to the employee if ever they will be terminated. The amount must be reasonable enough that it will keep the employee financially afloat while searching for a job that will not breach your non-compete agreement.
Employee non-compete agreement and contract templates are available at the standard sizes of US legal (8.5 inches by 14 inches), US letter (8.5 inches by 11 inches), and A4 (8.27 inches by 11.69 inches).
It is prohibited by law that an employee is forced to sign any business contract, and that includes a non-compete agreement. However, an employer can require a prospect to sign a non-compete agreement before starting the work. Opting not to sign the contract offer may cost a job applicant the opportunity to work for the company, but the option of signing still remains in that person.
Non-compete agreements are allowed and enforceable as long as it meets the four requirements. First, the provisions must only exist to protect the employer’s legitimate interests. Second, it does impose unfair terms on the employee. Third, it does not constitute harm to the masses. And fourth, it has a reasonable duration and geographical scope.
Reasonableness and consideration are the two pillars of your non-compete agreement. Although it is your business interest that you are protecting, not sparing any dime for your employee’s welfare could cost you a strike down from the gavel, that is, someone may lodge you with an expensive legal complaint and that would not be beneficial to anyone. Learn to meet halfway and you should be alright and airtight in enforcing your non-compete agreement.