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Non-Compete Clause: Uncovering the Basics

A Non-Compete Clause or Non-Compete Agreement (NCA) is a legally binding contract whereby the employee agrees not to work with a rival company or start a similar trade or profession for a specified period of time after leaving his current employer. By drafting such an agreement, employers can keep valuable information (like intellectual property) secret and prevent former employees from exploiting sensitive information (trade secrets, customer/client lists, marketing plans, etc.) in case they decide to work for the competition or start a similar business.   

Creating an NCC: What Information Do You Need?

In creating a Non-Compete Clause, you will need to provide the following information:

  • The names and addresses of the parties involved (both the Protected Party, or the party requesting the agreement and the Noncompeting Party, or the party who is being prohibited from working for a competitor)
  • The effective date and the duration of the agreement
  • The reason for the agreement
  • The geographic area covered by the agreement
  • The compensation or "consideration" for signing the agreement
  • The names of the individuals who will sign the agreement

Some Useful Tips to Consider 

  • Write NCCs for key employees. General agreements signed by all employees upon joining the company will not hold up in court so consider writing specific agreements for key employees instead.
  • Follow applicable state laws. Some states (e.g. California and Texas) often do not enforce such agreements and do not support employers in disputes along these lines.
  • Don't be too restrictive. Some non-competes are rendered unenforceable since they put too much restrictions on the Noncompeting Party. So define what you need to protect, determine which restrictions will help you accomplish your goal, and relate how these restrictions will help you protect your business interests.
  • Don't keep it a secret. Let your employees and competitors know about the company's policy regarding these things.
  • Remind them of the agreement. Remind employees who are leaving the company that they have previously signed a non-compete agreement. As such, they may need to review the document to avoid any problems in the near future.  

This article contains general legal information and does not contain legal advice. Rocket Lawyer is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.

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