While America has long had a reputation as manufacturer of high-quality products, manufacturing is no longer the “coin of the realm.” Instead, many American companies produce ideas and experts, who then go on to create value for the company.
Companies are investing heavily in their employees. And one of the best ways to protect that investment is through a well-written non-compete clause in employment contracts. In today’s post, we’ll discuss some basics about non-compete agreements.
If you want your non-compete agreement to be enforceable in court, it must meet several criteria. The first is that it must be considered reasonable in both scope and duration. It is common to prohibit former employees from working for a competitor within a defined geographical area for a defined period of time. A 30-mile radius for one year might be considered a reasonable scope and duration. A three-state radius for 10 years probably wouldn’t be considered reasonable.
Next, the non-compete agreement actually has to protect a legitimate business interest. It cannot limit the behaviors or employment opportunities of former workers merely as a punishment for leaving the company.
Finally, the employee who is agreeing to sign the non-compete agreement must be getting something of value in return (referred to as “valid consideration”). If the agreement is signed as part of a job offer, the job itself is the exchanged value. If the employee already works for you, however, he usually must be offered some value beyond the promise of continued employment. A raise or some other bonus may be necessary.
Non-compete agreements might seem to primarily benefit companies. But they should actually be a two-way street, offering value to both parties and, if appropriate, open to negotiation. For these and other reasons, you may want to seek the help of an experienced business law attorney when drafting, negotiating or enforcing a non-compete agreement.