If you’ve shared information with a business partner or employee that could be used to a competitor’s advantage and that relationship is coming to an end, then a non-compete agreement is something that you should consider. As an employer or businessman, this agreement takes away the concern and the legitimate possibility that your key players could work against you after your relationship is terminated.

What is a non-compete agreement?

A non-compete agreement keeps your business relationships from working for competitors upon termination or using confidential company information to gain a competitive advantage against you. You should consider signing non-compete agreements with those you consider to be key players rather than with all your employees or business partners. The non-compete agreement generally outlines the time period in which the party may not compete, the geographic area where they may not compete, and who or what is covered by the agreement. Additionally, the agreement can include a covenant not to recruit, which ensures that the terminated employee or relationship will not recruit other employees from your company.

Restrictions on using the clause

Non-compete agreements do have some restrictions, however. First, although the majority of US states recognize and enforce non-compete agreements, there remain some states that completely restrict their use except for in limited circumstances. California, for example, automatically voids non-compete agreements against employees except for in certain situations. So, it’s important to know how your state recognizes and restricts non-compete agreements before considering using one.

Second, most states require the terms of the non-compete agreements to be reasonable and to include consideration. Reasonability of terms generally applies to the time period and geographic limitations put on the party agreeing not to compete. Consideration, the second requirement, is most often the exchange of money for a promise. Often, however, businesses have their employees sign a non-compete agreement before they are hired. That way, rather than paying a fee to the employee, the awarding of the job itself acts as the necessary consideration. But, if a company fails to follow this practice and asks its employees to sign a non-compete agreement after they’ve been hired, then the company will be required to offer its employees an additional monetary bonus or compensation to meet the consideration requirement. But as long as both of these requirements are met in one way or another, most states will recognize the agreement as being legally binding and will enforce the conditions if breached.

Non-compete agreements play an important role in protecting your business so that those you work with don’t end up hurting you after they leave. Signing one with your key players and ensuring that the terms of the agreement are reasonable is an excellent way to protect your business from contributing to your competitors’ advantage.

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