Your Business Could Be at Risk If You Don't Use a Non-Compete

As a business owner, you've worked long and hard to attain the measure of success your business enjoys today. And you want to do everything that you can to protect your position in the marketplace and the goodwill you've built with your customers, suppliers, distributors and in the community. 

Your business' success, market share, and goodwill can be threatened by a departing employee who has intimate knowledge of your trade secrets, intellectual property, processes, and confidential data that could be used to the advantage of a competitor. That's why you should be using a Non-Competition Agreement (also called a Non-Compete Agreement).

The sole purpose of a Non-Compete is to restrict employees from working for, or becoming, a competitor for a specified period of time after they leave your employ. Now, not all employees know enough about your proprietary business information to be of any benefit to a competing firm. It's up to you to decide which key persons in your organization should be asked to sign the Non-Compete.

If you want to ensure that your business' trade secrets and proprietary information are adequately protected, you need more than just a Confidentiality Agreement. A Confidentiality (or Non-Disclosure) Agreement does not prohibit an ex-employee from working for one of your competitors, or from using their knowledge of your business to become a competitor themselves. An all-inclusive solution for many businesses is to bundle non-competition, confidentiality and non-solicitation provisions together into a single "business protection" agreement for a departing employee to sign. This type of agreement also prohibits your former employees from soliciting business from your clients.

In order for a Non-Compete Agreement to be enforced by a court, it cannot be unreasonably restrictive or put undue limits on the person's ability to make a living. The court will determine what is unreasonable, and that definition may change from jurisdiction to jurisdiction, depending on the laws in the relevant state, province or territory. For instance, under California law, most non-competition agreements are not enforceable against an employee or former employee. Find out what the laws applicable to your business will allow, and draft your Non-Compete accordingly. Here are some tips to follow:

• Set a reasonable time limit (anything from 6 months to 2 years).

• Make sure the agreement doesn't encompass too large of a geographical area and is not overly restrictive in the types of businesses the employee is prohibited from carrying on.

• Keep in mind that the goal is not to keep your ex-employee from working, it's to protect your business' interests and reduce the risk of your proprietary business information being used by potential competitors.