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Non-Compete Agreements: What Every Corporate Attorney Needs to Know
Successful businesses want to protect their proprietary information, whether it is a “secret ingredient” or a customer list. Many companies seek to achieve this goal by requiring that all employees sign a uniform “non-compete” agreement in an effort to reduce the risk of economic harm when the employment relationship ends and an employee goes to work for a competitor. Businesses often are surprised, however, to learn that the agreements that they were counting on for protection will not be enforced by a court. This unpleasant result can be avoided through careful drafting up front. The key to drafting an enforceable agreement is to remember that there is no “one-size-fits all” document. The laws governing non-compete agreements vary from state to state, and understanding the nuances among the states will help attorneys with the drafting process.
Most non-compete agreements are comprised of several different provisions, each with a particular purpose.
- A non-competition provision, by its very name, is intended to prevent an employee from engaging in activities that actually or potentially compete with the employer, such as opening a competing business or going to work for a competitor.
- A non-solicitation provision attempts to restrict an employee from soliciting the company's employees or customers to end their relationship with the company.
- A non-disclosure provision is aimed at limiting an employee's unauthorized use of confidential, proprietary or trade secret information.
General Principles Applicable to
Non-Compete Agreements
Agreements that restrict competition are disfavored in Anglo-American jurisprudence. Such agreements are enforced ' if at all ' only to the extent that they are: 1) ancillary to an otherwise valid agreement or relationship (most often, employment); 2) necessary to protect a legitimate interest of the employer; and 3) reasonably limited (generally, both temporally and geographically).
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