When you hire an employee or set up a business relationship with someone, there is always the risk that once that relationship ends, they will use their knowledge of your business to start a competing business or work for a competitor. Non-compete clauses and agreements protect you from this.
Widely applied non-competes have become more common recently, which has meant that the courts heavily scrutinize any non-compete clauses and contracts. If you are considering having employees or partners sign a non-compete, you must be sure that a contracts lawyer with special experience working on non-competes in your jurisdiction examines the language thoroughly for it to be enforceable. Priori can connect you with a contracts lawyer with non-compete experience in any of our markets.
Defining Non-Compete Clauses and Agreements
A non-compete clause in a contract or an entire non-compete agreement restricts an individual or company from providing services or engaging in business in certain markets and locations for a certain period of time in a way that would compete with your business. The idea is that your company will be protected from losing employees to direct competitors who will leverage inside knowledge or contacts to gain marketshare. A non-compete protects your company from the potential that trade secrets and other knowledge learned by a former employee or business partner will be used in the future to compete against you in the future.
General Provisions in Non-Compete Clauses
Most non-competes include the following general provisions:
- Effective period. The effective date and term must be specified in order for a non-compete to be enforceable. The period of time of the prohibition from working as a competitor or for a competitor must be reasonable for your business cycle and industry.
- Reason for non-compete. There must be a specified, reasonable motivation for the non-compete agreement.
- Geographic area: A non-compete can generally only be enforced within a specific geographic area, be it a state, city, or even country. This specified area must make sense given your market.
- Non-solicitation. Not all non-competes include non-solicitation clauses, but it is often prudent to protect your clients or employees from being poached.
- Compensation. There must be some compensation for not competing, and this must be specified. This can be the benefits of employment if included in an employee contract.
- Penalties. Generally, the specific penalties for breach of a non-compete agreement will be specified.
Non-compete clauses and agreements cannot simply be a blanket prohibition from competition for an extended period of time. They must balance the need to protect your legitimate business interests with any burden that enforcement of the agreement would place on the signee. Generally, a non-compete must not infringe on a person’s ability to make a living, so it must have a reasonable scope and duration.
Depending on the complexity of the employee relationship the cost to draft non-compete clauses and agreements can vary significantly. Hiring a lawyer in the Priori Network, provides access to reduced hourly rates and transparent flat fee packages between $1,000-$1,500 for non-compete clauses and agreements. In order to get a better sense of cost for your particular situation, put in a request to schedule a complimentary consultation and receive a free price quote from one of our lawyers.
Is a non-compete really enforceable?
The short answer is sometimes. Many jurisdictions disfavor non-compete clauses, whereas others are more inclined to find them enforceable. You should talk to a Priori contracts lawyer to make sure you understand the rules in your jurisdiction.