If you’re afraid of your employees competing against your business, either moonlighting now or after they leave, chances are you’re going to want a non-compete agreement in place for protection.
Yet there’s a few things you need to understand before going down that road.
First, you must give an employee something of value (consideration) in exchange for a binding contract not to compete. Just asking someone to “sign this” after they’ve already been working for you isn’t a recipe for success if you plan to enforce the agreement.
Second, the non-competition agreement must be reasonable. Factors that determine reasonableness include (a) geographic scope, (b) scope of activities restricted, and (c) how long the employee cannot compete.
And a non-compete isn’t for every worker. For example, it doesn’t make sense to use one with an individual who is an independent contractor instead of an employee. Or with a low-level employee (e.g., French fry cook at a fast-food restaurant).
Remember that courts disfavor restrictions on competition. So if you have to enforce a non-compete agreement (instead of just using it as a deterrent by having it executed), the burden will be on you as the employer to prove the provisions are reasonably necessary to protect your business.
For example, if you own a local advertising agency that only deals with clients in your city, chances are a judge will reject the geographic scope of a non-compete as unreasonable if it prevents an employee from opening a similar agency in another state or country.
If you need help protecting your business with the right employment contracts or independent contractor agreements, it’s probably time to schedule a phone consultation with Business Lawyer Mike Young.