Non-Compete Agreements: Frequently Asked Questions
Are you considering signing a non-compete agreement3 min read
Are you considering signing a non-compete agreement? There are several important questions you should ask before doing so. Companies and employers often require employees to sign non-compete agreements in order to protect their confidential information or trade secrets. But, if you’re a small business owner, you may want to create one for your employees in order to protect your products, services, and proprietary information. No matter which side of the agreement you are on, you need to understand the terms and implications of a non-compete agreement. To arm yourself with the knowledge to make the best decision for yourself, consider the frequently asked questions (FAQs) about non-compete agreements.
What Is a Non-Compete Agreement?
A non-compete agreement is a legally binding contract between an employer or a company and its employee or contractor. It stipulates that the employee or contractor agrees not to compete with the employer or company in the same area of business for a specified amount of time. This agreement restricts the abilities of the employee to join a competitor or to use the knowledge gained while working for the initial employer to create a competing business.
What Are the Benefits of a Non-Compete Agreement?
Non-compete agreements provide employers and companies with legal protection should their former employee or contractor move to a competitor or open up their own business in the same field. Companies may also require an employee to sign a non-compete agreement if they are bringing someone on board from a rival company in order to protect their own lawful trade secrets and confidential information.
Are Non-Compete Agreements Enforceable?
The enforceability of non-compete agreements varies by state. In New York, a non-compete agreement must be reasonable in terms of the duration and geographic scope of the agreement. It cannot impose harsh restrictions that would prevent an employee or contractor from finding other work or from starting their own business. Moreover, the agreement must be part of an overall valid employment contract, one in which the employee is receiving some form of compensation or benefit.
What Happens If Someone Violates a Non-Compete Agreement?
If an employee or contractor violates a non-compete agreement, the employer may file a lawsuit to stop the breach and claim damages. Depending on the violation, the damages may include lost profits or other economic harm suffered by the employer.
How Can I Create an Effective Non-Compete Agreement?
One of the most important elements of a non-compete agreement is to make sure it is clear and specific. The agreement should include a strategized list of customers and competitors the employee or contractor is barred from contacting. It should also specify the geographic scope of the agreement, which generally does not extend beyond the state where the employer is located.
Additionally, the agreement should specifically detail the duration of time that the employee cannot compete with their former employer. A general rule of thumb is that the duration should be related to the amount of time the employee gained knowledge or had access to confidential information that could benefit a previous employer’s competitor.
Are There Alternatives to Non-Compete Agreements?
There are alternatives to a non-compete agreement, such as a non-solicitation agreement. This agreement prevents an employee from attempting to hire away or solicit customers of their former employer. It also may prevent a former employee from working in the same field, in a different area, from attempting to solicit former colleagues to join their new employer.
Seeking Legal Counsel for Non-Compete Agreements
If you’re considering a non-compete agreement for your business or are looking to sign one as an employee, it is best to speak with an experienced attorney. An attorney licensed to practice in New York will be familiar with the nuances of the local statutes that govern non-compete agreements. UpCounsel’s network of legal professionals verifies each attorney’s credentials to ensure our clients receive high-quality, cost-effective legal counsel.