Non-Compete Agreements, or NCAs, are a type of contract or clause that serves to protect employers and their businesses. In short, they disallow current and former employees from sharing proprietary information. NCAs also prevent employees from working with your competitors, or starting a competing business nearby. This is not to say that NCAs are a cure-all. In some instances, courts throw out NCAs for limiting on worker’s rights too much. It is important to speak with your business attorney to ensure that the NCA is drafted properly.
What is a Non-Compete Agreements?
An NCA is a contract that the business and employees sign, which states that they must keep company information private. It includes language that restricts employees from working with competitors or starting a competing company of their own. It also often includes limitations on the sharing of customer lists, contact information, and the sharing of trade secrets. In order to ensure that your company’s NCA is enforceable, there are a few key details that you must include.
- If the court determines that your NCA is too restrictive, it is unlikely to hold up in court. If the court determines that your NCA is preventing your employees from finding employment, then it might be a violation of their right to work. It is beneficial to you to thoroughly define your competitors, in some cases even outright naming competitors in your contract.
- In most cases, the longer the NCA lasts, the less enforceable it becomes. While there is no exact timeframe for the duration of a contract, NCAs most often last from 6 months to a year. It can be longer, but remember that the longer it lasts, the less likely that a court will uphold it.
- Courts tend to be more likely to uphold NCAs if the geographical limit is more local. This of course depends on the industry, but limiting your workers’ ability to find employment must be held to a reasonable radius in order to not violate their right to work.
When to Create an NCA
There are a few benefits to creating an NCA. One such benefit is to prevent employees from sharing proprietary information. This is helpful if your company has processes, procedures, or products that are unique to your business. While employees are likely privy to this information while employed with your company, an NCA prevents those employees, current or former, from sharing this information with the public or their new employer for the duration of the NCA.
Another time an NCA is useful is in the purchase of a business. You can create an NCA which would prevent the seller from starting a new, competing business within a specified region or set distance from the business being sold. In addition, if you are selling your business, having an NCA on file can put potential buyers at ease that current employees will not run out to work with competitors.
There are many benefits to a properly drafted and executed Non-Compete Agreement. Each state has its own laws and regulations regarding NCAs, and ensuring they are help up in court is paramount to their efficacy. Therefore it is vital that an NCA or any business contract be drafted with the guidance of your business attorney.