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How Businesses Can Misuse Non-Compete Agreements

When non-compete litigation is brought up, many assume it is rooted in a breach of contract. Litigation can occur when someone violates a non-compete that they signed. Consider the employee who leaves a company and begins working for a direct competitor. This employee could have started working for the competition right away and/or within the same area. Given that these kinds of limitations are typical clauses in non-compete agreements, when this happens, employers can file lawsuits to enforce the original agreement and seek financial damages for any harm their business faces. 

Let’s switch the perspective: Look at non-compete agreements from the employer’s side. Employees can create the potential for litigation by violating their signed agreements, and businesses can also miss an opportunity to protect themselves by failing to draft a legal and binding document. Contracts and agreements are your way of predicting the future. When trying to safeguard critical trade secrets and proprietary information, you want the comfort in knowing that despite what happens in the future, you have a form of recourse. Should a former employee share confidential business information, you can pursue litigation to protect your intellectual property rights. This only works when you have well-written agreements in place. 

How Non-Compete Agreements Can Be Weakened

Since we briefly brought them up in the previous section, we will begin with duration and geographic scope. A non-compete agreement must have reasonable limitations regarding both factors mentioned above. There is a line between protecting your business and preventing a person’s ability to be in a specified industry for an extended time. When a non-compete is overly restrictive, it becomes unenforceable. 

Another element is a lack of consideration, which may not mean what you think the term implies. Typically, these agreements are signed when an employee starts working at a company. For this agreement to be valid, there must be sufficient consideration. In other words, the person bound by the agreement must get something in return. Granted, as long as they work for the company, they will likely receive a salary and other predetermined benefits. Is that enough compensation to ask them to sign a non-compete agreement? It could be, but this is something that will surface in the conversation you have with your attorney. Specific laws and requirements differ by jurisdiction, and although employment is generally accepted as sufficient consideration, it is not always the case. 

The last piece that we want to bring is tied to scope but not in terms of a geographical area. Non-compete agreements are only meant to protect legitimate interests. This could extend to many things, such as trade secrets, confidential information, or customer relationships. On the other hand, if it is overly broad and prohibits an employee from working in an unrelated field, it could be invalid. Depending on how the non-compete is written, it may appear to be used to eliminate competition instead of protecting your interests.

Protect Your Interests

Contracts appear simple to those without a legal background. This isn’t a pitch for the legal community but speaks to how complex contract formation is. They include legal terminology, contractual language, and concepts only people who study and draft contracts understand. To give you the most protection, you need an attorney who will create an enforceable contract. Get in touch with our business law attorneys to learn more about how we can protect you and your business.

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