Our post last week focused on non-compete agreements. If you are a business owner and will be hiring employees, there are many benefits to including a non-compete agreement in your employment contracts. But as we mentioned earlier, these agreements are not always enforceable if they are not structured in a certain way.
In today’s post, we’ll discuss the three factors that a non-compete agreement must contain in order to be considered enforceable in court. The first was discussed last week: It must be reasonable in its scope, its geography limitations and its time limitations.
The second factor is that it must be “supported by valid consideration at the time it is signed.” This means that employees must be given something of value in exchange for agreeing to the non-compete provisions. If the person signing the contract is a new hire, the promise of a job is usually a sufficient value. But if someone has been working for you for years and then is asked to sign a non-compete agreement, the promise that they can keep their job is generally inadequate. They must be given valid consideration in the form of a bonus, a promotion or some other value.
Finally, a non-compete agreement needs to protect a legitimate business interest such as customer lists or trade secrets. In other words, you cannot prevent an employee from quitting and working for a competitor simply out of spite. You need to demonstrate that an employee’s decision to immediately start working for a rival company would harm or jeopardize a legitimate business interest.
As we wrote last week, non-compete agreements are important legal documents that are only effective if they are enforceable. Therefore, they should be written with the help of an experienced business law attorney.