Non-compete agreements are a valuable tool for protecting a company’s interests when an employee leaves. However, it is important that you write the agreement carefully written to hold up in court if challenged.
There are 3 key elements to include when drafting a non-compete.
1. Limit geographic scope
Define the specific geographic area covered by the agreement. Limit the non-compete to areas where the employee physically worked and the company operates. Overly broad geographic restrictions are a common reason courts strike down non-competes.
2. Specify a time period
Reasonable time restrictions are also essential for an enforceable non-compete. While requirements vary by state, you need a reasonable duration, such as up to a year, of restriction for an employee from working for a direct competitor after leaving. However, 1-2 years is sometimes acceptable for roles where the employee gained extensive proprietary knowledge or developed close customer relationships. Just make sure restrictions are no longer than necessary to protect your business interests.
3. Limit restricted activities
Clearly define the scope of activities prohibited by the non-compete. Limit the restrictions to roles and services directly in competition with your core business offerings. Also specify that the non-compete only applies to employment relationships, not simply doing business with or providing services to competing companies as an independent contractor. Broad activity restrictions increase the risk of a court seeing the agreement as restrictive of employee mobility and choice.
Carefully drafted non-compete agreements can protect your business when employees move on. With reasonable limits and clear language, these agreements can withstand legal scrutiny.