Non-Compete Agreement

What is a non-compete agreement?

A non-compete agreement is an agreement that aims to protect an organisation or business by restricting the activities of other parties with whom they are contracting. Non-compete agreements are also used to protect confidential trade information.

 

What are the different types of non-compete agreement?

The different types of non-compete agreement include:

• Employee non-compete agreements;
• Non-compete agreements with an independent contractor (e.g under a service agreement);
• Non-compete agreements between partners in a business (e.g. in a General Partnership agreement or LLP Agreement), or
• Non-compete agreements with a vendor or sales agent (e.g. under a sale of goods agreement or a sales agency agreement).

 

What is the difference between a non-compete agreement and a non-disclosure agreement?

A non-compete agreement restricts a party from either contracting with a competitor or from starting their own competing business, at least for a specified amount of time or within a specified within a specific geographical location.

A non-disclosure agreement (NDA) is an agreement that prevents a party from either sharing or using confidential information that they may acquire or have access to during the term of the transaction or contractual relationship. The NDA may continue to apply even after the end of the contract between the parties.

 

Is it mandatory to have a non-compete agreement?

No, it is not mandatory to have a non-compete agreement, as it is the choice of the party seeking to enforce it to decide whether it is needed or not. However, it is recommended to have one where there is a fear of competition or the need to protect confidential trade information.

Who can enter into a non-compete agreement?

A non-compete agreement can be used by any business structure entering a commercial contract. These includes sole traders, general partnerships, LLPS or Companies.

What can be the duration of a non-compete agreement?

There is no legally mandated maximum duration for a non-compete agreement. In practice however, most non-compete agreements do not exceed 12 months.

What has to be done once a non-compete agreement is ready?

Once the non-compete agreement has been completed with the relevant details, each party should sign two copies. Each party should then send a copy of the document with their signature of approval to the other party in order to form a reciprocal binding contract. Alternatively, the parties may sign the document in the presence of each other at the same time in order to form the contract.

For companies and limited liability partnerships, a contract can be entered into by the use of the company common seal, partnership common seal, or by the signature of a representative who is authorised to enter into the contract by the company or limited liability partnership.

Is it necessary to have witnesses for a non-compete agreement?

No, it is not necessary to have witnesses for a non-compete agreement. It only needs to be signed by the respective parties for it to be valid.

What must a non-compete agreement contain?

A non-compete agreement must contain the following:

• The duration (i.e. the length) of the non-compete obligation;
• The specific place, region or area where certain actions are not permitted (if applicable); and
• Details about what type of actions are not permitted.

Which laws are applicable to a non-compete agreement?

The key piece of law which is relevant to non-compete agreements is the Competition Act 1998.

The Companies Act 2006 also governs the formalities for a company or a limited liability partnership to enter into a contract.

The Partnership Act 1980 governs the formalities for a partnership to enter into a contract.

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