Johnny B. Employee walks through your door and hands you a stellar resume. You take him under your wing, spend weeks training him, teach him the ins and outs of your business, and on his fifth work anniversary, he tells you that he’s going to work across town with your competitor. What can you do in this situation?

Here’s the bad news: once Johnny’s gone, he’s gone.

But, here’s the good news: If he signed a non-compete agreement before he left, he can’t release any of your intellectual property or tell your competitor any of your trade secrets.

What are non-compete agreements (NCA)? First off, these contracts typically have two important sections: 1) protection of trade-secrets and 2) restrictions on where employees can work after they stop working for your company. The first usually covers safeguarding proprietary information, such as company product information, sales strategy and client lists. The second usually prevents an employee from working for a competitor in the same market or geographical area for one to two years. 

However, there are major hindrances to non-compete agreements. About one third of the United States has different restrictions and parameters within their state. For example, in Arizona and Illinois, these contracts are not allowed in the broadcasting industry, in Hawaii, on the other hand, these contracts are enforceable “unless their effect is to lessen competition or create a monopoly.” Simply put, before drawing up forms or adding a clause to your employee handbook, check with your contract attorney.

Many times, though, non-compete agreements are not enforced because they are so restrictive or because their wordings are vague. According to Heather Bussing of the HRExaminer, “When the agreement is signed at the beginning of employment, courts will usually interpret the NCA to be part of the overall employment deal and find that there was some fair exchange for the agreement. But when an employer asks an employee to sign a non-compete agreement after starting employment and there is no extra payment or benefit to the employee for signing it, then almost all courts will invalidate the agreement for lack of consideration.” Bussing continues to explain that, “The next thing to consider is the laws of the states involved—where the employer is headquartered and where the employee will physically be working. If either has restrictions against enforcing NCAs, then the agreement may not be effective.”

So should you have future employees sign non-compete agreements? With so many factors in the mix, such as the state you live in, what your competition looks like, and what industry you’re in, you should discuss it with your business lawyer.

About the author

Christina Morales

Christina helps provide useful business and legal tips on UpCounsel for our customers and visitors. Having over a decade of writing experience in a variety of industries, she has also been very close to the legal space from a young age with family members who continue to practice business and tax law.

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