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Drafting an Effective Non-Compete Agreement

Date: 04/13/2007 | Category: Business | Author: Diana Heeb Bivona

Noncompete agreements are a common practice in business. It’s not an unusual request for a company to ask an employee, particularly a key employee, to sign one. However, many employers often find out after the fact that the agreement probably wouldn’t hold up in court if challenged. Most successful challenges of a non-compete agreement are those that claim the agreement with too broad, limiting neither time period nor geography. In the case of noncompetes, it is definitely one of those situations where the devil is in the details, and if you want yours to stand up in a court of law, if challenged, you need to take the time to draft a solid one.

The first thing you need to understand is how your particular state views noncompetes.  States differ in their approaches. In California, they are practically unenforceable.  In other states, such as Illinois, they can work just fine.  In almost all situations though, the court will frown on an agreement they believe is too overly board.  Be sure to include a reasonable specific timeframe that the non-compete will be in place and designate a specific geographic area.  For example, the agreement is in effect for one year and covers the six neighboring counties.
Additionally, your noncompetes will be stronger if they apply to employees whose specific expertise—close ties to customers, knowledge of trade secrets—means their leaving could cause real damage to your company.

Finally, always ask a potential new hire if they are subject to anyone else’s noncompetes.  This could save you a trip to court and investing time and energy in someone who can’t work for you anyway.

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