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Common mistakes made in non-compete agreements

An increasing number of employers have been making workers sign “non-compete” agreements. These are agreements where employees pledge not to work for a competitor if they leave the company for any reason. The purpose of these agreements is generally for a company to protect its trade secrets, its confidential information, and its customer/client relationships, and they can be enforced in court through legal action against the worker, the new employer or both. But before rushing to make your workers sign non-competes, there a few things to consider, including:

  • How long does it last?

Courts won’t enforce non-competes that last for more than a reasonable amount of time. How long is “reasonable?” That can vary. Generally, six months to two years is seen as a reasonable amount of time. There have been cases where courts have enforced non-competes for up to five years when the employer made a good case for why that might be reasonable. But if it looks like you’re trying to hold workers hostage and prevent them from engaging in their trade, courts will take a harsh view.

  • How wide is its reach?

Judges take an equally dim view of non-competes that cover too broad a geographic territory. For example, a non-compete that covers the entire U.S. will in most cases be too broad. A court might enforce a non-compete that covers multiple states, but it’s a bad idea to go beyond the states where you actually do business. Some non-competes block out certain counties or a certain radius around the employer’s headquarters. Even in these cases, however, you generally need to show you actually have customers or business interests you need to protect within that area.

  • Who are you restricting?

There’s a strong temptation to saddle all your employees with non-competes, and a lot of employers today are trying to do just that, even binding the most entry-level workers. But you’re more likely to be able to enforce your non-compete if you limit it to workers who can really do you harm by bringing trade secrets and confidential information to your competitors or by poaching your clients. If you operate a restaurant or a retail outlet, a court will not look kindly on your efforts to block cashiers, fry-machine operators or floor help from working elsewhere.

  • What activities does it cover?

The best non-competes are narrowly tailored to a specific employee to protect against specific harm he or she can cause. That means you don’t want a one-size-fits-all non-compete for all employees. You want to be as specific as possible in defining the activities that would constitute “competition.” For example, instead of barring your entire sales force from working for any competitor, you’re better off barring them from reaching out to specific clients they dealt with a lot when they worked for you.

This is just the tip of the iceberg. Talk to an employment attorney where you live to learn more.

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