What Is a Non-Competition Agreement and How Does It Work?

What you’ll discover:

Understanding the Non-Compete Clause
What Details Do You Need to Create an NCC?
Consider These Suggestions

A non-compete clause (NCC) is a contract law phrase that may assist employers in protecting their company interests. When should you use it, and how does it work? Here’s what you should know.

Understanding the Non-Compete Clause

A Non-Compete Clause (NCC) or Non-Compete Agreement (NCA) is a legally enforceable contract in which an employee pledges not to work for a competitor firm or to begin a comparable trade or profession for a certain length of time after leaving his present employer. 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.) if they decide to work for the competition or start a similar business by drafting such an agreement.

What Details Do You Need to Create an NCC?

You must provide the following information when drafting a Non-Compete Clause:

The names and addresses of the participants (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 agreement’s effective date and duration
The agreement’s rationale
The geographical scope of the agreement
The “consideration” or remuneration for signing the agreement
The names of those who will sign the accord

Consider These Suggestions

Make NCCs for critical personnel. Generic agreements signed by all new workers will not be upheld in court, so consider crafting specialized agreements for critical employees instead.

Obey all relevant state laws. Several jurisdictions (for example, California and Texas) often do not enforce such agreements and do not defend businesses in such disputes.

Don’t be overly stringent. Some non-compete agreements are invalid because they place too many limitations on the non-competing party. Define what you need to preserve, identify which constraints will assist you in achieving your objective, and illustrate how these restrictions will assist you in protecting your company interests.

Don’t keep it hidden. Inform your staff and rivals about the company’s stance on these matters.

Remind them of the deal. Remind departing workers that they have already signed a non-compete agreement. As a result, they may need to evaluate the document in the near future to prevent any complications.