Noncompete Agreements | How-to Guides for running your business from Business.com

Company secrets and valuable business knowledge can be protected by noncompete agreements between employers and their employees. These contracts or clauses are legal agreements that dictate what company information can and can't be used by current or former employees.

Noncompete agreements are more necessary today than ever because of advancing technology. Client information, company-specific software and intellectual property available to employees need the protection afforded by successful noncompete agreements. The trick is creating an agreement that is enforceable.

An enforceable agreement contains the following characteristics:

The agreement has reasonable terms for both the employer and employee
It contains precise wording that specifies what exactly is protected
It is signed by all applicable employees, preferably upon hiring
It pays attention to specific state guidelines as to what can and cannot be protected

Make sure you have a concrete, legal agreement to present to employees that will guard your company's valuable information.

Action Steps
The best contacts and resources to help you get it done

Choose an applicable type of agreement

There are four basic types of noncompete agreements. The classic noncompetition agreement forbids an employee from working for a competitor or directly competing against the employer after termination. Nonsolicitation agreements prevent employees from otherwise soliciting the employer's clients. Nondisclosure and confidentiality agreements deal more with intellectual property and promise that information learned will remain secret. Confidentiality refers to the employer's discretion as well.

I recommend: Begin with a LawDepot sample noncompete agreement. See if the sample fits your business and modify as necessary. Other sample forms are available at CCH, SmartBiz.com, Envision SBS and Internet Legal Research Group.

Be specific about what is protected

Noncompete agreements protect trade secrets; for example, information that is not general knowledge or is specific to your company. Broad statements about "company information" do not hold up well in court. Specific examples of hardware, client lists or blueprints make an agreement that is easier to protect.

I recommend: Use design tools at Designers Toolbox to hone your agreement. If possible, have the agreement checked by an attorney. While drafting your agreement, refer to My Employment Lawyer or MedLawPlus for frequently asked questions.

Consider duration and penalties

Thou shalt never compete until the end of time is an unreasonable noncompete agreement. Enforceable noncompete agreements usually cover one to three years after the term of employment. A successful agreement is reasonable in duration and scope, and is beneficial to both employee and employer.

I recommend: State-specific legal forms at LawGuru outline what guidelines apply to noncompete agreements in your home state. Use this information to draft a fair and thorough document.

Make sure applicable parties sign the agreement

Not all employees need to sign a noncompete agreement. Mailroom clerks with no access to valuable information do not need to sign an agreement. If the head of IT (or other employees with access to trade secrets) does not sign an agreement, however, you can take no action against them if they use your company's knowledge against you in the future.

I recommend: Learn who needs to sign noncompete agreements and what exactly they are prevented from doing at Entrepreneur magazine. A general rule is to present the agreement to employees who have enough company information to quit and start up a rival business against you.

Tips & Tactics
Helpful advice for making the most of this Guide

Though noncompete agreements were initially popular with mostly high-tech companies, today they are relevant in numerous industries.
A noncompete agreement does not uniquely consider employees. A successful agreement protects employers and employees alike, preventing damaging lawsuits.
A good relationship with your employees goes far toward building trust, which is the best way to ensure the success of your agreement.
Have a lawyer draft the agreement, or at least look it over. Noncompete agreements can be unpopular with certain state courts and difficult to enforce.

The official source of Noncompete Agreements is the Noncompete Agreements page at Business.com

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