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Non-Compete Agreements: Useful or Useless

Date: 05/09/2006 | Category: Business | Author: Diana Heeb Bivona

There are two general camps of thought on non-compete agreements.  One school believes that non-competes can protect your business from losing valuable trade secrets and employees.  The other believes they aren’t worth the paper they are printed on, and can be easily broken if taken to court.  In fact, in most cases, California law will not enforce a non-compete agreement.

Regardless of which camp you fall into, non-competes do serve a purpose and can prove to be a useful way to protect your business’s trade secrets.  You just need to remember a few key essential points when drafting your non-compete.

First and foremost, when structuring your agreement make sure that you are not restricting an individual from making a living in the future.  Courts place a high value on a person’s right to earn a living and if you drastically curtail that ability, chances are your agreement will not hold up.

Other things to remember:

(1) Have a sound business reason for asking your employee to sign.  Typically, your reason will be to protect your trade secrets or a customer base you’ve worked long and hard to develop.  Furthermore, be selective in who signs the agreement.  If your AA doesn’t have access to this information, then they shouldn’t sign an agreement.  Judges are much more likely to enforce non-compete agreements against employees who truly possess inside information.

(2)  Provide a benefit for signing.  You must provide a benefit to the employee in exchange for their promise not to compete against you.

(3)  Be reasonable.  This means that you can’t expect the agreement to remain in force for 5 or 10 years after the employee leaves or that they can’t secure similiar employment within the same state.  Generally, courts favor non-competes that are anywhere from six months to two years in length and that have a more narrowly defined employment proximity restriction.  Anything longer than 2 years is typically scrutinized more closely.

So the bottom line is if you are reasonable, the law will prevail on your side

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