Noncompete Agreements: What You Should Know
Your employees likely have access to and knowledge of important trade secrets and other pieces of information that make your business run the way it does. It has to work this way: if your employees are not given the information they need to help your business operate smoothly, your business cannot be a success.
But, this creates a potential problem. Employees aren’t likely to stay with your company for life. Chances are, at some point in the future, they’ll move on to something new. This something new could be a competitor, someone else in your industry, or another business that could benefit from the specific knowledge that employee gained while working for you.
It doesn’t have to be a major concern if the right protections are put in place from the start. One of these is a noncompete agreement, under which an employee promises to not work for a direct competitor for a specific amount of time. If you’ve considered having employees sign noncompete agreements, there are some things you should know.
Why Noncompete Agreements Matter
Noncompete agreements encourage employees to stay with employers for longer amounts of time, but, they also protect confidential information and trade secrets – patterns, formulas, methods, processes and more.
When an employee leaves, or employment is terminated, these trade secrets could be used against your company. In short, noncompete agreements protect your business from the competition and those that could potentially harm you.
What to Consider
Noncompete agreements are important, so is the right of every American to earn a living. Therefore, they should be used wisely in order to be protected under law. If your noncompete agreement is too strict to allow a former employee to find work elsewhere, it may not hold up in court.
Things to consider when contemplating the use of a noncompete agreement include:
The Reason Why
Noncompete agreements are not designed to punish employees for leaving your employment, they are designed to protect your business. Be sure you can clearly explain why your agreement is important, and that it in no way is meant to damage a previous employee’s future prospects.
Use Your Judgment
Yes, you can have all employees sign a noncompete agreement. However, judges may be more likely to enforce agreements that are signed by employees that truly have access to confidential, inside information. Therefore, consider each employees role and access level prior to creating a company-wide noncompete agreement.
Exchange a Benefit
A noncompete agreement is essentially an employee promising to not compete against your company in the future. This means that it must be mutually beneficial to hold up. One way to provide a benefit to the employee is to make a job offer contingent on the signing of the agreement. The employee is receiving employment while you protect your business.
For current employees, presenting the agreement during a promotion or before a raise could satisfy this need.
The Agreement Should be Reasonable
Remember, every American has the right to work. Therefore, your noncompete must be reasonable. This means that the period or geographic area it covers, along with the types of competitors, must be reasonable. If a noncompete completely prevents an employee from working elsewhere in the future, it is not reasonable or fair.
Generally, noncompete agreements that cover a six-month to two-year period are considered reasonable. Take the time to think about your industry, your competition and what you’re trying to protect when considering what is reasonable and what is not.
Ready to Get Started?
Creating a noncompete agreement that is enforceable is critical for the long-term success of many businesses. If you’d like to protect your interests, a great first step is to contact an experienced business law attorney, like Michael Hynum of Hynum Law in Harrisburg Pennsylvania.
Our team is available to answer any questions you may have and to work with you to create an agreement that reasonable and effective. Call today to set up a consultation; we look forward to working with you.