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In this article, you’ll learn about non-compete agreements (NCAs), what it is, which state laws apply to your agreement and more.
A non-compete agreement is a contract that prevents one party from competing with another. It is typically signed when one person starts working for a new company or joins a new profession. The non-compete clause sample will show you what the terms of your NCA should be.
Learn all there is to know about a non-compete agreement, including the rules and regulations that apply in your state. Plus, use a free customizable template to create your own non-compete agreement.
A non-compete agreement (NCA) protects a company’s assets and competitive interests by prohibiting existing workers or other associates, such as clients or partners, from obtaining comparable jobs or establishing similar firms and stealing consumers. When a company has a unique or well-performing product, service, or sales platform with a clientele that might be depreciated due to leaving personnel, the agreement, or contract, is employed.
Every NCA needs particular, explicit, and extensive information on the company’s interests and the employee’s agreement. Begin by customizing our free NCA template to meet your unique company requirements.
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What Should a Non-Compete Agreement Contain?
Certain elements should be included in your NCA in order to keep it complete and legally enforceable.
- Restricted Company: Clearly specify the information and activities related to your business that you intend to safeguard in your agreement.
- Restricted Zone: The NCA should specify the particular territory that is off bounds in the event that an employee leaves your company to seek work elsewhere.
- Restricted Period: The term for which the NCA will be in force should be explicitly stated in your agreement.
- Consideration: Make sure your contract has a consideration provision that protects your employee. The terms and circumstances of payment in return for reciprocal consideration are spelled out in a consideration clause.
- Restrictions: A good restriction policy informs employees that they are not permitted to engage in comparable commercial activities outside of your company.
- Exceptions: Any NCA exceptions should be specified, including the proportion of outside commercial activities that are permitted.
- Include language that plainly prohibits any employee from soliciting outside employment from any other employee, client, or customer.
- Confidentiality and non-disclosure: Your NCA should declare that no employee is allowed to share private information or trade secrets with anybody outside the firm.
- Return of Property: If your workers are given corporate property during their employment (e.g., a business computer or a company car), make sure they know how to return it when they leave.
- General Provision: Any provisions or legal remedies incurred as a consequence of a breach of contract should be included in this part of your NCA.
- Acknowledgment: At the bottom of your NCA, there should be an area for both the employee’s signature and the corporate representative’s signature and date.
Non-compete Agreements: State Laws
NCAs often limit workers from working in the same sector as their previous employers. This is why several governments have taken things into their own hands by either not permitting NCAs or only allowing them in extremely particular or limited instances. To see the law in your state, use the drop-down option. Your state does not have an NCA statute if it is not mentioned.
Non-compete Agreements: State LawsAlabamaArizonaCaliforniaColoradoConnecticutDelawareDistric Of ColumbiaFloridaHawaiiIllinoisIowaLouisianaMaineMarylandMassachusettsMissouriMontanaNew JerseyNorth DakotaOklahomaOregonTennesseeTexasVermontVirginiaWashington
When Should You Use a Non-Competition Agreement?
In general, having an NCA is becoming more prevalent as consumer rivalry develops and young workers’ entrepreneurial spirit gets stronger. If you’re still unsure if an NCA is required for your company, consider the following questions. If you answered “yes” to any of these, you should consider having all of your workers sign an NCA.
- Do you have a client- or customer-based company?
- Do you fear that one of your workers may attempt to start a comparable company?
- Do you have concerns that your staff are snooping around on your customers or suggesting them they might charge them less?
- Do many of your staff run their own side businesses?
An NCA may be required by several sorts of businesses and roles within a business. Consider the following scenario:
- Boutique marketing company: You may require an NCA in this circumstance since your team members will almost certainly have a marketing experience and may leave you to work for another marketing agency. In many states that resist NCAs, this is referred to as the “right to earn a livelihood.”
- Fitness studio: Make sure your employees don’t recruit consumers to become “private clients,” such as teaching them at their homes rather than at your gym for a lower fee.
- As a startup, you’ll need an NCA to defend yourself. This is a situation in which someone assists you in starting your company, then goes on to start their own and steal your customers.
- Salespeople: If your salespeople are offering a product or service that is widely accessible on the market, having an NCA in place will assist prevent unwanted customer loss when your salespeople depart. An NCA is often not necessary if your product or service is a specialty or proprietary product because to the legal guardrails that surround the product.
If a non-compete agreement (NCA) is required, it should be included in the onboarding process when new workers are hired.
Pros & Cons of Non-compete Agreements
Avoid These Mistakes When Drafting a Non-Compete Agreement
NCAs that are well-written may help a company keep its most important assets and people, safeguard its customers, and limit the possibility of unfair competition. However, if they aren’t well-crafted, they might give you a false feeling of security, which is potentially worse than not having one at all. Here are some things to keep an eye out for:
- Interpretation of Competition: Defining your competition too broadly will make your NCA ineffective. Instead, be detailed and clear in your description of what constitutes competition. Consider if working for a rival, starting a comparable company, or serving a customer from your present book of business is deemed competing (and why).
- Lack of Consideration: There must be consideration for an NCA to be enforceable, which is a legal term for a “exchange of value.” Explain explicitly what the employee stands to benefit outside of continuous employment when drafting your NCA.
- Length of Enforceability: NCAs seldom survive indefinitely. Specify when the non-compete clause starts and ends, as well as the period of its validity, in your contract. Depending on the terms of the agreement, it usually lasts a year.
- Territory is defined as: It’s possible that your territory isn’t global. Your NCA will run into issues if it tries to limit competition in an unusually vast region. Make careful to specify the limited region in which the employee is prohibited from competing. What is the size of your territory? Typically, an NCA is limited to a short radius (within a specified number of miles of the firm); but, your scenario may need a larger radius (i.e., a global or online company).
- Confirm Jurisdiction: An NCA that is valid in one state could not be valid in another. Similarly, a remedy for a breach of contract may be permissible in one area but illegal in another (within the same state). Companies doing business in various states face considerable challenges as a result of this. Determine which state or jurisdiction the NCA will be active in and where it will be adjudicated if necessary.
- Failure to Update: Your company’s conditions and the regulations regulating NCAs will almost certainly change over time (including essential employees, key customers, and confidential information or trade data). Clarify any modifications and adjustments with your staff so that your NCA continues to develop while being lawful.
Conclusion
Depending on your sector and region, an NCA may be beneficial, particularly at the management level and in the professional and sales aspects of your firm. Examine the legislation in your state and obtain legal assistance to discover whether an NCA is appropriate for your company’s requirements. Make that each important employee has a thorough NCA in place, if appropriate.
A non-compete agreement is a contract that prevents an employee from working for a competitor after they have left their current position. These agreements are typically signed by employers and employees, but can also be legally binding on the employer if certain conditions are met. State laws vary, so it’s important to understand what your state requires before signing any NCA. Reference: non compete agreement illinois.
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