Noncompete agreements typically prohibit employees from joining a competitor. Regularly used in conjunction with nondisclosure agreements, noncompete agreements also prevent workers from starting their own competing businesses.
If you want to retain top talent, having a comprehensive noncompete agreement may be in your company’s interests. Not all noncompete agreements are enforceable, though. Here are three potential problems with your company’s current agreement.
1. A lack of consideration
Because noncompete agreements are contracts, they must include consideration. Both the signing employee and your company must give up something in exchange for executing the contract.
If you have an already-hired worker sign a noncompete agreement, consideration may be lacking. That is, your company may not have provided sufficient consideration for the noncompete agreement to pass legal muster.
2. An unfairly long time
While many companies have a legitimate business interest in preventing competition from former employees, the interest usually does not last forever. Accordingly, if your noncompete agreement runs for an unfairly long time, a court may refuse to enforce it.
The appropriate length for a noncompete agreement usually depends on many factors, including the nature of your business. Still, to avoid enforcement problems, you may want the noncompete agreement to cover the shortest time frame possible.
3. An overly broad geographic area
In addition to temporal restrictions, noncompete agreements should not cover too large a geographic area. While it may make sense to prohibit employees from competing in the same city or even state as your company, keeping them from doing business hundreds of miles away may be unacceptable.
When drafting an enforceable noncompete agreement, narrowly tailoring the geographic area and time restrictions are essential. Put simply, your agreement should protect your business interests without unfairly burdening your former employees.