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Three things to know about non-competition agreements

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If you’re a business owner, you have a vested interest in staying ahead of the competition. While you achieve this goal in many ways, having top-notch employees is paramount to your success. Talent pool retention is a focal point for any business operator, but what happens when a skilled employee moves on to a competitor?

A non-competition agreement can be a valuable tool for preserving your business’s interests. This contract, entered by an employee and employer, may ensure that a worker does not join a competitor after termination.

Here are three important aspects to consider with regards to non-competition agreements:

1. What is included in a non-competition agreement?

In order to be legally binding, a non-competition agreement generally must include the following:

  • An effective date stating when the agreement will begin.
  • The compensation the non-competing party will receive for agreeing to the terms.
  • The reason for enacting the agreement in the first place.
  • The duration during which the non-competing party will not be allowed to work for a competitor, as well as the geographic area the agreement covers.

2. What is reasonable for duration and scope?

A non-competition agreement is usually in effect for a specified period of time after employment ends. This duration–as well as the geographical scope for the agreement’s application–is subjective. If, for example, you’re concerned about protecting confidential information, the duration should generally not extend past when it will no longer be valuable. For issues of scope, courts typically won’t allow you to bar an ex-employee from an area in which you do not conduct business.

3. Are non-competition agreements always legally valid?

Issues of legal validity are ever-present with non-competition agreements. How restrictive the agreement is, what the state laws dictate and what is deemed competition can all be factors weighed by the court. A non-competition agreement that is reasonable in its terms will often have a better chance at being enforceable.

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