Why Should Employers have Them?
A non-compete agreement is a contract between an employee and an employer in which the employee agrees not to enter into competition with the employer during or after employment. Non-compete agreements in employment contracts are essential in protecting your business from unfair competition, and safeguarding your trade secrets and confidential information once an employee decides to leave.
How much can I Restrict in a Non-Compete Agreement?
Non-compete agreements should aim to try to find a balance between protecting your business’s trade secrets and confidential information, and allowing your employees to find work elsewhere, even for your competition. As an employer, you must show that the restrictions in your non-compete agreement are supported by a legitimate business interest.
Legitimate business interests are:
- Trade secrets
- Confidential business information
- Substantial relationships with specific prospective or existing customers
- Extraordinary or specialized training
If you non-compete agreement is not related to any of the legitimate business interests listed, the agreement is not enforceable.
Your non-compete agreement can restrict an employee in the following ways:
You can limit the location and area in which an employee can seek work after they leave based on where the employee worked, but you cannot restrict an employee from doing business in an area where you do not do business.
Time of restriction:
If your legitimate business interest is not to protect trade secrets, you can restrict your employees from working for other employers in the same industry as you for a minimum of six months to two years. However, if your restriction involves protecting trade secrets, you can restrict employees for up to five years.
Scope of restriction:
You can restrict employees from working for other businesses in the same industry as you, as well as working in the same or similar position for your competition.
What is “Reasonable”?
The restrictions in your non-compete agreement must be reasonably necessary to protect your legitimate business interests. This means that you cannot restrict your employees for no reason, or make restrictions that are oppressive to your employees, even if you have a legitimate business interest. Courts may even modify your non-compete agreement if they find that the restrictions imposed on your employees are not reasonable. The reasonableness of your non-compete clause depends on the facts and circumstances of your particular case.