A Non-Compete Agreement is a document used to protect employers from partners, employees, contractors, and other individuals with access to their business secrets and practices using that access to leave the company to start their own competing business in the same industry. Non-Compete Agreements are used most often in highly competitive industries, such as technology development, sales, and marketing.
Common situations requiring the use of a Non-Compete Agreement include the following:
The Agreement is generally entered into at the end of a business relationship, but can also be created at the start of a business relationship as a condition of employment. In exchange for entering into the Agreement, the non-competing party must receive some form of compensation, known as consideration. Consideration can be either a promise of employment or monetary compensation to be paid from the protected party to the non-competing party.
How to use this document
This Agreement outlines the duration of the non-competition, the geographic location where the non-competing party must avoid competition, and the covered subjects, industries, and activities that the non-competing party must not engage in while the Agreement is in force.
The Non-Compete Agreement contains the following essential elements:
This Agreement also offers optional clauses that would prohibit the non-competing party from behaviour such as soliciting the protected party's customers and clients or inducing current employees of the protected party to leave their jobs and come work for the non-competing party.
As with all other parts of the non-competition, non-compete agreements are not always enforceable under Australian law. A restraint will only be enforceable if it imposes no more restrictions than are necessary for the protection of the other party's legitimate business interests. Therefore, these clauses must be limited in time and scope so as to be enforceable as reasonable by a court of law in case of dispute.
Non-Compete Agreements are subject to the common law doctrine of restraint of trade.
This means that the agreement must be directed at protecting specific interests of the employer (such as trade secrets or business goodwill). The courts will not uphold a restraint clause that restricts competition per se, or unduly interferes with an employee's right to sell his or her own labour.
Importantly, if this agreement is being used with an employee, then it should be remembered that post-employment restraints are presumed to be invalid and unenforceable. It is up to the employer to prove that the restraint is necessary to protect a legitimate business interest.
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