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 behavior 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, 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 the subject of state law and are interpreted and enforced differently from state to state. Some states allow broader Non-Compete Agreements while other states will only enforce Agreements with significant durational and geographical limitations. Notably, California courts will only enforce Non-Compete Agreements in situations involving the sale of a business from one party to another. State law should be consulted to be sure that the Agreement will be fully enforceable in that state.
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