Are you searching for non-compete agreement templates? Many businesses are always prone to the risk of capturing the market by new entries. Some businesses provide opportunities for startups to capture the market very quickly. Thus, the employers of such businesses always focus on establishing a non-compete agreement before hiring any employee on the key position.
The non-compete agreement helps the employer to legally bound the employee from entering into the same business as a competitor during or after the employment. However, these contracts mainly prevent the employees from entering into the direct competition market. The side businesses and support businesses are allowed.
Table of Contents
- 1 What is a non-compete agreement?
- 2 What are the basic parts of a non-compete agreement?
- 3 What benefits employers get from a non-compete agreement?
- 4 Why do Employers use the Non-Compete Agreement Template?
- 5 Who should use a non-compete agreement?
- 6 When do you use a non-compete agreement?
- 7 Is a non-compete agreement enforceable?
- 8 How do I get out of a non-compete agreement?
- 9 What should be included in Non-Compete Agreement?
- 10 How to make a non-compete agreement?
What is a non-compete agreement?
A non-compete agreement is a formal agreement between an employee and employer after their relationship ends. It restricts the employee from working and from becoming a competitor for a particular time period. This agreement is also known as a non-compete clause or restrictive covenants.
After signing a non-compete agreement, an employee wouldn’t enter in any business of the same nature or any other type of work that makes him a competitor and puts the secrets of your business at risk.
What are the basic parts of a non-compete agreement?
There are three basic parts of a non-compete agreement that should include in the non-compete agreement;
- Duration: The non-compete agreements hardly hold up in the court for a long period of time. Generally, the agreements are of 2 years or less. Short-term agreements are for 6 months or less. If the employee is terminated then you can also include the severance option.
- Scope: For confined work and certain services this part must be restricted.
- Geography: The region where the company does the business is a well-reasoned determination.
Moreover, the non-compete agreement also involves the following components;
- Competition: The employer should also tell about his competitors. It doesn’t mean you have to define the name of competitors individually, you just have to inform the kind of business and industries employees are stopped from working in.
- Damages: This agreement explains that what loss an employer will get if an employee violates the agreement.
What benefits employers get from a non-compete agreement?
Employers get various benefits from a non-compete agreement. This agreement restricts an employee that he can’t share industry experience, trade secrets, client lists, knowledge, potential clients, etc. Moreover, all confidential and proprietary information gets secured.
It also saves the employer workability of business, products, and processes. This agreement also saves the best interests of other working employees as it makes sure that their termination wouldn’t weaken their best interests.
Why do Employers use the Non-Compete Agreement Template?
A company needs human resources in the form of permanent, part-time, or consultant employees. These employees work on the key competencies of the business. So, many business and trade secrets are accessible to these employees. Therefore, it becomes necessary for employers to establish a non-compete agreement with any consultant or employee who has access to the business secrets of the company.
As many employees and consultants start their own business and develop as a competitor to their ex-company. They use the skills and secrets learned at the company. Thus, the use of those secret strategies with further enhancements may help the employees to capture the same market and cut off the ex-company business.
Further, there is another risk associated with the accessibility of business secret information. The employees have access to the secret recipe, formula, strategy, methods, practices, ideas, and marketing plans. So, the employer must focus on securing the reveal of all such information to the competitor by an ex-employee.
Also, there are several positions involved in the business that have access to the company secrets. So, the HR department needs to carefully draft a good non-compete agreement for all the employees. Therefore, a non-compete agreement template is very helpful.
Who should use a non-compete agreement?
An employer should use a non-compete agreement to prevent an employee from using the employer’s confidential business information. Employees may use this information to get a competitive advantage at other jobs when they have left the company. This agreement should use by businesses that involve the exchange of confidential information which is critical to the success of the business.
When do you use a non-compete agreement?
Companies can use a non-compete agreement in the following scenarios;
- Companies can use a non-compete agreement when they hired a new employee. Also, it is part of a hiring package. The employees have to pay some form of payment for their agreement. To make the agreement legally binding, the offer of employment and salary is a sufficient incentive when the agreement is signed at the time of hiring.
- The employee may have to sign this agreement at any time especially when the company finds they have seen the sensitive nature of information. However, in some manner, the employee must be compensated. The job itself isn’t sufficient as a current employee already gets a salary/paycheck. Another solution is offering a one-time monetary payment.
- You must use this agreement when you are buying a company from a previous owner. This agreement makes sure the previous owner doesn’t open a new company that competes with the company you have bought.
Is a non-compete agreement enforceable?
In the US states, a non-compete agreement will recognize as a valid and enforceable legal document. This indicates that the parties mentioned in the agreement are bound to its terms and conditions. However, some states don’t recognize this agreement as enforceable. So, you must check your state laws to know whether or not your state recognizes this document. Furthermore, it might be possible that the non-compete agreement will not be valid if you are trying to enforce it in a state where a non-compete is not recognized.
How do I get out of a non-compete agreement?
There are two methods that will help you to get out of a non-compete agreement;
Method#1: Demand for a release
- The first step in method#1 is to take a copy of the agreement you signed so that you can read it thoroughly and identify the things the company seeks to protect. It will tell you what you need to demand a release.
- Secondly, remember what your responsibility at the company was.
- Next, view your state’s law.
- After that, outline your main points that are the objective of your discussion.
- Schedule a meeting with your manager or HR representative.
- Arrange the terms of your release and create a new agreement.
- In the end, a release from the agreement is also in written form.
Method#2: Go to the court
- If you ignore the non-compete agreement, then you receive a notice from the court that your employer may sue you.
- Hire an attorney
- Submit your answer to your employer’s complaint in the court
- Take a part in the discovery and prepare your case.
- Involve a third party to settle down all the matters with your former employer.
What should be included in Non-Compete Agreement?
The non-compete agreement usually sounds like a one-sided agreement. However, these are fair and equitable for both the employer and employees. Therefore, it needs to include all the necessary information for legal usefulness. Also, it is usually developed by the business lawyer having legal information about the state law.
First of all, the agreement must clearly state the date of its application and effectiveness. Also, it is helpful to clearly state the reason for establishing the agreement. Here, the company may touch the trade secrets that are prone to the accessibility of the employee and that may harm the business stability if a competitor came to know about those. Thus, the agreement must clearly state all the reasons.
As the non-compete agreement isn’t a lifetime agreement. It specifies its validity date with reference to the resignation/termination/retirement date of the employee from the company.
Further, mostly the non-compete agreement is associated with the location. The coverage of location in the agreement is important. It provides a fair and equitable right to the employee in the agreement.
So, if an employee wants to start the same business after leaving the company. The employee has two choices. Either to wait for the barred or validity period of an agreement to end or choose the market location that doesn’t violate the contract location clause.
Finally, the most important thing is to include the details of how the company will take legal action in case of any violation.
How to make a non-compete agreement?
Here are the steps to make a non-compete agreement;
Study your competition
First, search for the businesses that have direct competition with your business. Your competitors offer the same goods or services as you. You must determine the possible conflicts of interest that may arise among your employees.
Write the agreement
It’s up to you whether you make a non-compete agreement from scratch or use an online non-compete agreement template. Either way, you just have to ensure that your agreement reflects the specifics of your business.
Review your agreement with a legal professional
When making legal documents like non-compete agreements, you must consult with a lawyer or legal representative. Hire a lawyer and ask him to read the agreement thoroughly and suggests any possible omissions or flaws.
Give the non-compete agreement to your employees
When you present the contract to the employee, give them enough opportunity to ask questions. Reading the document with them is the best thing to do.
Sign and date the non-compete agreement
Sign and date the non-compete agreement only if everyone is satisfied. Keep a copy of this agreement for your record and give another copy to your employee for their records.