Covenant Not to Compete Agreements
Covenant not to compete agreements, also known as a non-competitive clause, is a formal agreement signed by employees asking them not to perform similar work within a designated area for a certain period of time after leaving their employer.
This agreement may be a separate document similar to a non-disclosure agreement or it could be part of a number of clauses in an employment contract.
Most companies encourage the signing of a covenant not to compete as a way to protect the company, especially in matters related to trade secret and other highly sensitive information. Without this agreement, there would be legal ways to prevent an employee from starting his own company in the same place, using the knowledge that he had acquired from his former employers.
Aside from this, the agreement may also address other potential issues between employers and former employees, such as the following:
- One, when an employee signs this agreement, it means he could not use insider knowledge of the company’s customer base to unfair advantage.
- Two, this agreement also prevents former employees to recruit other employees to create a new competition, thereby also preventing potential brain drain in the company.
- Lastly, a covenant not compete may also define the specific amount of time before a former employee can seek employment in a similar field.
Although employees often get favorable decisions on this issue during arbitration, most covenant not compete agreements are enforceable, especially if the court sees the following elements:
- If the restriction on the employee’s right to compete is not greater than that necessary to protect the employer’s business interests.
- If the employer can prove that it has a legitimate business interest to protect by restricting the employee’s right to compete against it.
- If the agreement is supported by consideration, meaning the employee received something in exchange for it
A well-written covenant not to compete agreement is therefore a vital instrument to one’s business. To an employer, it can prevent a former employee with knowledge of company’s confidential information to cause potential harm to business. On the other hand, the agreement must be fair and reasonable, at the same time taking into consideration the employee’s right to seek gainful employment.
We assist employers in the drafting and preparation of covenant not to compete agreements and other business documents. To make sure that all legal issues are covered in the preparation and drafting of your covenant not to compete agreements, consult with the skilled business attorneys at Business Corporate Attorneys.
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