How to Get Started on a Non-Compete Clause
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Non-compete agreements are a crucial component of many businesses, creating restrictions regarding where a former employee can work and what they are allowed to do. Getting started on a non-compete clause can be daunting, but with the right guidance, the process can be straightforward and stress-free.
What Can Be Included in a Non-Compete Clause?
It is important to understand the basics of non-compete clauses. These agreements fall under “covenants not to compete” in the legal system and can often involve prohibitions related to geographic boundaries; competition with the former employer; engagement in a similar business or activity; or contacts with customers, vendors, or prospective customers.
A typical non-compete clause includes a geographic limitation for the employee, meaning they are prohibited from relocating to a certain radius from the employer. It can also prohibit employees from working for competitors within the same radius, limit the solicitation of former employees and customers from the employer, and prohibit the use of confidential information.
Every Wording Matters in Non-Compete Clauses
Since non-compete agreements are legally binding, it is important for the wording of the contract to be clear, concise, and appropriate. Every sentence, phrase, and word must be carefully crafted to ensure they are compliant with state and local requirements. If the court determines that any portion of the agreement is too restrictive or vague, the entire agreement may be declared void.
When it comes to non-compete agreements, simpler is often better. Usually, the more concise the language, the more likely it will be upheld in court. Generally, courts will consider an agreement overbroad if it includes restrictions that prevent the employee from making a living.
Obligations of the Employer and the Employee
Non-compete clauses must also be fair to both parties. Usually, employers are responsible for ensuring that the restrictions are reasonable and do not interfere with the employee’s ability to make a living. If the court determines that the agreement is unreasonably harsh or excessive, it may not be legally binding.
The employee is usually expected to agree to certain restrictions in exchange for consideration, which is typically a payment that is promised to be provided by the employer at the time of signing. If the payment is not provided, the clause may not be enforced.
Important Considerations Related to Non-Compete Clauses
When creating a non-compete agreement, employers and employees should consider how the clause would be interpreted if tested in court. Factors such as geographic scope, length of time, defined activities prohibited, and relevant business interests of the parties must be taken into account. It should also be kept in mind the changing local laws and regulations that require certain modifications to the agreements.
Additionally, the courts could require the employer to prove that the agreement reasonably protects their interests and does not completely deny the employee from finding comparable employment. Therefore, it is important to create safeguards that would protect both parties in the event that the agreement is challenged.
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