Business owners can protect their interests by adding various features to their employee contracts, including non-competition agreements. Our trusted employment lawyers – California can help you draft a non-competition agreement that protects your company from losing customers to former employees.
A non-compete agreement can help your business thrive, even as you experience employee turnover. Here are some ways you can deploy these agreements in a legally-binding manner.
What is a Non-Competition Agreement?
A non-competition agreement is between an employee and an employer, and it stays in place during and after the employee’s time with the company.
This agreement means that an employee will not compete directly with the company after they’re no longer employed by the company. That means that an employee who frequently deals with your clients cannot take those clients when moving to a new company.
These agreements often protect proprietary information and confidential company matters by preventing your employees from sharing them during or after their period of employment. This allows you to protect trade secrets and maintain your position in the market without losing essential advantages to your competitors.
Often, these agreements will list a specific length of time. That way, a former employee can’t leave your company and take half your clients to a different company for a year or so. It may also cover a specific geographic area or a market.
Some of these documents also prevent former employees from working directly with a company’s competitors.
What Are the Benefits of a Non-Competition Agreement?
A non-competition agreement can prevent the loss of clients when an employee leaves your company. It means that you won’t have to worry about former employees using your business model and proprietary knowledge to build up a different company. Furthermore, they won’t be able to take your loyal customers.
These types of agreements are common in media, IT, and many other tech industries. Any business in an industry with a lot of competition and close relationships with clients has good reason to use non-competition agreements.
Many states have limits to how many years these agreements can last. Some states limit them to a year, for example, to stop workers from being forced out of industries if they leave your company. They aim to find a balance between protecting companies and leaving former employees without future employment prospects.
How Can Small Businesses Use Non-Competition Agreements?
Small businesses owners can use non-competition agreements to prevent their employees from taking away their client base. For small businesses, a loss of clients can be devastating and even put the company in jeopardy.
By creating a fair and reasonable agreement for your employees, you can ensure that none of them lure clients away after they leave your employment.
Non-Competition and Non-Disclosure Agreements: What’s the Difference?
Non-competition agreements relate to working for a competitor. On the other hand, a non-disclosure agreement (NDA) prevents former employees from sharing proprietary information — ranging from a database of clients to product information and technology.
If an NDA is overly broad, the courts may consider it the same way they approach a non-competition agreement. NDAs are designed to protect specific information that has value to a company and is entitled to confidentiality.
These two agreements can sometimes be used together, especially in the field of technology and any other area where information is integral to the business operation.
What Are the Legal Consequences of Violating Non-Competition Agreements?
Non-competition agreements can be hard to enforce. Their legality varies by state, and while some states support them, others may not. California does not enforce them in most instances, but there are some situations where they do come into play.
In California, these agreements can be enforced for business partnerships. These limits apply after a partnership dissolves, or one person leaves the business. The result is that a former partner can’t leave their business to start a new business in the same industry within the same geographic area.
The same applies to former members of a Limited Liability Company. Members can enforce non-competition agreements to ensure that a member won’t create a similar, competing business in the same area, focused on the same market.
When these agreements are enforced, the company has the right to sue anyone who violates them. Going to court doesn’t guarantee a favorable outcome. However, you may want to consult a legal expert before going ahead with litigation.
Can Employees Get Out of Non-Competition Agreements?
Employees can potentially go to court to get out of non-compete agreements. They can do so by finding an obligation the employer failed to fulfill, proving that the company is not protecting a legitimate business interest, and other reasons.
Another common complaint is that the agreement covers an excessively long period. If a business creates an agreement saying the employee must not compete for five years, most courts will deem that to be too long of a period.
An agreement with unreasonable terms isn’t enforceable, and a frustrated employee can find their way out of such an agreement. On a similar note, employers who attempt to enforce an agreement that doesn’t hold up legally will be responsible for their employee’s legal fees. Companies can even be made to pay damages for costing a former employee a job.
Consult With Experienced Employment Lawyers
A clear understanding of the law is essential when creating this type of agreement. Non-compete agreements can be very beneficial to small businesses, but they must be deployed in an appropriate manner.
Overusing them, or drafting them with unfair conditions, can backfire and result in unwanted litigation that will cost your business time and money.
LibertyBell Law Group P.C. specializes in business agreements and contracts. Our legal team can advise you on non-competition agreements and the other options to protect your company.
We’ll help you draft reasonable agreements that can hold up in court without being deemed unfair. Contact us today to set up a free consultation with our employment lawyers!