A Non-Compete Agreement: Legal Requirements and Why Employers Use Them

Quite often there are cases when the independent contractors require new workers to conclude a non-compete treaty. As a rule, such a proposal is voiced before the laborer takes up his/her duties and does not lose legal force after ending of the labor relationship. There are a number of nuances that must be taken into account when drawing up such papers. Let's look at the details.

Why Employers Use a Non-Compete Agreement?

By the mentioned category is meant the consolidation of the links between the wage-earners and the boss, when the former refuses to compete with the latter, even after dismissal. Similar treaties hold collaborator within the profession or a specific area that is not on the corresponding list. This norm frequently includes highly qualified consultants or managers.

Among the reasons for signing akin covenants, a lot of chiefs refer to the protection of a trade secret or the firm’s reputation. From the company authorities’ view, the image represents an asset can be used by competitors. To avert such a development of events, the director ensures himself against ill-will or hypocrisy of the wage-earners through a deal.

The same principle applies to the defense of corporate data such as product recipe, customer base, contacts, chemical formulas, promotion strategy, etc. The owner is required to demonstrate the measures taken to classify information. This procedure gives the businessman significant advantages. Some courts disagree with an akin restrain of the rights, freedoms, and earnings of the laborer. This explains so keen attention in such treaties. When making a decision, the judge must balance the interests of the authorities and coworkers.

What Included a Non-Compete Agreement?

They are perceived as legally binding as long as there are reasonable justifications, for instance, clearly defined areas where collaborators may work or the exact amount of time that must elapse before a worker get the right to enter the competitive arena.

However, certain nuances depend both on federal and local legislation. States such as California, North Carolina, and Oklahoma basically ignore similar covenants, unlike other regions. The latter carefully prescribe the risky jobs and industries for each of the firms. In general, any non-competitive treaty should consist of the next elements:

  • Date of entry into force
  • Reason for signing the contract
  • Specific terms during which the employee will be prohibited from working in a competitive environment
  • Details of compensation for consenting to conditions

Only if there are specified items, your paper can be considered legal and fair. Let’s imagine, in the perfume market, there are three big companies. The owner of one of them may offer sellers to sign such a deal in order to prevent the list of clients from entering the wrong hands. Another typical example is when a computer game developer does not want its former laborers to participate in open competitions and share knowledge about the products being developed.

It is quite natural that businessmen protect their relations with buyers, but also ex-colleagues have a legal permission to earn a living. If you have difficulties explaining the non-compete treaty, it is better to contact a labor attorney.

Legal Requirements for Non-Competition Agreements

Correctly executed contract of the specified content must comply with the following standards:

  • Both sides fully agree with the points
  • Absolute defense of employer's interests
  • Observance of the principles of moderation with respect to specialization, location and time of action

The indicated treaties, as a rule, are accompanied by a valuable offer to the wage-earner in exchange for his/her future long-term loyalty. Of course, if a person puts own signature before starting work, then the placement itself will already serve as a guarantee of his/her honesty. The opposite situation arises in the case of the appearance of such a covenant after the termination of cooperation. It is necessary to interest the laborer by offering him a material reward or other alternative that was not originally determined as part of the bargain.

Non-compete contracts should be reasonable in terms of duration and scope. Timing must be realistic and aimed at support, not tyranny of the individual. It depends on the conditions of each case. If we are talking about confidentiality, the period for keeping silence should not exceed the time limit for the value of such information. The geographic scale also requires rationality. Court usually allows you to work in an area that is not covered by the master's services.

In the event that the non-competitive treaty is excessive, the judge may limit its scope or the time period, giving it the status of an amended document. If the paper is intended to support a monopoly on the market, a judicial decision may release a coworker from performing it. After all, the economy is built on healthy competition.

Thus, a non-compete agreement has an ambivalent nature. On the one hand, it defends the chief from the loss of valuable resources. On the other hand, it significantly limits the choice of the collaborator in case of his dismissal. It is essential to remember here the harmonization of the favors of both sides. Observance of confidentiality requires certain material compensation because we all need to earn in order to survive in this world.