A non-compete agreement is an agreement not to enter into a similar position or start a similar business that competes with your company. It is used when there is a concern that a founder, owner or employee could leave the organization and exploit confidential information to gain a competitive advantage over your company.
The challenge of non-compete agreements
Don’t jump in too quickly though. Non-compete agreements are often deemed excessive and unenforceable in court, so seek legal advice before asking people to enter into such an agreement.
Non-compete agreements can also cause difficulties in the employment relationship unless both parties understand and respect the reasons for them. Courts will scrutinize restrictions in the non-compete agreement to determine if they are truly reasonable.
For most regular employees, a non-compete agreement will not be upheld in court. However, in the case of senior or key staff, they may be deemed appropriate.
When to prepare and put a non-compete agreement in place
To be valid, a non-compete agreement must be in place before the employment begins. In the case of founders or owners, this clause may be a part of the incorporation process or partnership agreement. It is not something that can be put in place when someone resigns or is terminated.