What Features Should A Non-Compete Agreement Include?
One of the trickier tasks a company may have to deal with on the employment contract front is crafting a non-compete agreement. Enforceability is essential, and that's rarely as simple as getting a signature from the employee or contractor. Here are features an employment attorney will include in every non-compete agreement.
Reasonable Scope
If there's one thing a former employee will use to torpedo a non-compete clause in a contract, it's excessive scope. The legal notion of scope refers to when, how, and where an agreement applies. Depending on the nature of your business, that could encompass many years, several industries, and a couple of continents.
Notably, if you fail to include specifics within the scope, you'll end up with the opposite problem. The contract will be declared too vague, and it'll be deemed unenforceable.
The scope has to be specific and reasonably limited. For example, a software developer can't be prevented from using their skills anywhere in the world for the rest of their life just because a tech company wants to lock competitors out of the market. At most, a couple of years' worth of non-competition is the most that can be asked without providing massive compensation.
Good Compensation
This refers to the idea that you can't just include a clause in a contract without providing an additional reward for the person accepting it. As with all contracts, there has to be an exchange of consideration where both parties get something. Generally, employment is considered good compensation. A contractor may have to be paid more for their non-competition. However, in both cases, it's likely an employment attorney will specify what compensation is being paid for in the agreement just to be clear.
A Termination Clause
A termination clause should be in the contract to address what happens if the employee is terminated. Otherwise, you may need to provide additional compensation to make the non-competition agreement enforceable. That's especially the case if you choose to dismiss the employee. Typically, courts are less likely to side with employees who were terminated due to their own actions. However, an employee who was simply laid off for economic reasons probably will have a pretty strong case to get out of a non-compete clause unless termination was addressed.
Transferability
It's assumed that a non-competition contract only applies when it has been affirmed between an employee and a specific business. A clause should also be included that allows the agreement to be transferred if the company is acquired or split up.
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