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Non-Compete Agreement Template

A non-compete agreement is used for new employees to provide protection to the company. Learn more.

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One of the most important elements of any business contract is the non-compete clause. This agreement between an employer and employee protects company trade secrets and restricts an employee from working for a competitor, starting a competing business, or soliciting the employer's customers or employees. But it does have several pros and cons. If you need a non-compete agreement template to draft for your employees, read on for more information.

What Is a Non-Compete Agreement?

A non-compete agreement, also known as a restrictive covenant or a non-compete clause, is a legally binding contract between an employer and employee. Its main purpose is to prohibit the employee from competing with the employer during or after the employment relationship.

Non-compete agreements are typically used to protect an employer's business interests, such as trade secrets, customer lists, and other confidential information. They can also be used to prevent an employee from leaving the company and immediately starting up a competing business.

However, non-compete agreements are subject to state laws, so it is important to consult with an attorney to ensure that the agreement is enforceable in your area of operation.


Why Do Companies Use a Non-Compete Clause?

Non-compete clauses are typically included in employment contracts and can help protect an employer's business interests. For example, if an employer has invested time and resources into training an employee, they may want to prevent that employee from leaving to work for a competitor and taking that knowledge with them.

Non-compete clauses can also help protect an employer's customer base and confidential information. By preventing employees from going to work for a competitor or starting their own business, companies can help to ensure that their employees will not solicit their customers or share confidential information with them.

While non-compete clauses can be beneficial for employers, they can also be unfair to employees and limit their ability to find new employment. As a result, it is important for companies to carefully consider whether or not to include a non-compete clause in their employment contracts.


When Should a Company Use a Non-Compete Clause?

Non-compete agreements are ideal for small business owners to protect their interests in the market. It’s particularly important if you want to protect specific intellectual property, brand or industry secrets, unique processes or procedures, and a loyal customer base.

While a non-compete agreement template can be issued to employees in any industry, they’re particularly common in the media, financial services, corporate management, manufacturing, and information technology industries.

However, there are some serious limitations with a non-compete agreement, and depending on the state you operate in, it’s not always a necessary component of an employee contract.


What Are the Limitations of a Non-Compete Clause?

It’s important to know that these clauses are not always enforceable. Since President Biden’s Executive Order on Promoting Competition in the American Economy, it’s becoming more difficult to uphold the clauses in some states.

It’s best to pay attention to your specific state laws and seek legal advice when considering when to use a non-compete clause in your business. For example, in California, it’s almost impossible to enforce a non-compete agreement.

For this reason, it’s also a good idea to use a non-compete agreement along with other protective measures such as a proprietary information and inventions assignment agreement and non-disclosure agreements.


What Should be Included in a Non-Compete Clause?

While there isn’t necessarily a set non-compete agreement template, there are some very important elements to include to ensure your clause is as enforceable as possible. Some of these components include:


Duration: Set out a specific time frame for the duration of the agreement. It’s generally accepted that six months to 1 year is a reasonable amount of time.


Geography: Consider your geographic location and include the area in which employee is prohibited from working for a certain amount of time.


Scope: Outline the type of work and services that the employee cannot enter into after leaving your business. It should outline anything that is specific or unique to your company and its products.


Competitors: Define who you consider to be competitors and outline a general picture or idea of what industry or types of businesses your employee agrees to not work for.


Damages and consequences: Set out the damages or consequences if the agreement is broken by the employee in the set time frame.


Severability provision: It’s recommended that small business owners include a severability provision, which is a clause in the contract that severs any unenforceable provisions.


Tips for Drafting a Non-Compete Clause

When drafting an effective non-compete clause, it is important to keep a few key points in mind in order to boost the chance of the clause remaining legally binding.

  • Be specific: The clause should be narrowly tailored to protect only the information that is truly confidential and valuable to the company.
  • But not too restrictive: It’s not fair to completely restrict your ex-employees from finding new work or starting their own company. Courts also often don’t uphold an agreement that is considered too restrictive.
  • Seek professional advice: Considering the enforceability and validity of a non-compete clause differs between states, it’s best to seek legal advice when drafting your template so that you’re abiding by any state laws.

Staying on Track

By taking these factors into consideration, you can draft a non-compete clause that will protect your company's interests while also being fair to your employees. If you're thinking about using a non-compete clause, download our non-compete agreement template and speak with an attorney.

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