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Creating Bulletproof Non-Compete Agreements
Published on Aug 11, 2013
Read 'Creating Bulletproof Non-Compete Agreements' at 'Time to Start Up,' the small business blog by BizFilings.
The belief that non-compete agreements can actually prevent a valued employee from going to a competitor is no longer as widely accepted as it once was. Instead, it’s been replaced by the notion that if an employee leaves the incorporation for a competitor, it’s ultimately a waste of time and resources to challenge his or her decision.
But is it, really? Below are some tips for small business incorporations that wish to create a non-compete agreement that has teeth.
Make the Agreement State-Specific
Many attorneys believe that creating a universal-type agreement, which may seem easier from an administrative standpoint, is a mistake that can leave incorporated businesses vulnerable. As a small business owner, you needn’t don’t need to establish multiple agreements. You may be better off, however, creating a generic agreement for most states, tailoring another agreement for the more restrictive states and another for more relaxed states.
Go Easy on the Restrictive Covenants
Experts suggest that one reason non-competes are deemed unenforceable is that the employer attempts to make the document too restrictive. Perhaps the incorporated company owner tries to limit a broad range of conduct, the agreement extends for decades – instead of years, or it covers a wide swath of states or even countries. Any of these limitations may lead to the agreement being determined null and void. Tip: Two years is typically a good term length for a non-compete.
Define Confidential Information
An overly broad definition of what is confidential information can doom a non-compete agreement. Attorneys recommend that the terms apply specifically to what a particular employee does at the incorporated company. These terms may serve as the antidote to the former employee bringing a failure-of-consideration argument down the road.
Safeguard Your Confidential Information
Many an employer has had their non-compete voided because they tried to restrict the former employee from disclosing ‘confidential’ information even though the employer had not taken adequate steps to shield the information itself.
Make Sure a Forum Selection Clause Is in Place
Courts will typically uphold a requirement that any legal disputes being adjudicated in a forum of the employer’s choice. Make sure the forum selection language is mandatory as opposed to permissive. Use the word ‘shall,’ not ‘may,’ when dictating this term.