Mistakes to Avoid While Drafting a Non-Compete Agreement

A well-drafted, enforceable non-compete agreement can help employers prevent unfair competition from soliciting customers or employees, restrict employees from using its confidential information against the employer, and retain valuable employees. But, there are times when the binding terms and conditions are not as legally sound as they ought to be and are likely to be declared invalid if the employee chose to challenge the contract. It’s best to work with a lawyer to minimize the chances of creating non-compete agreements which are otherwise, adequate or non-forceable. This is because every contract is drafted with a specific goal of the business in mind. While every contract needs to be tailored to the company’s purposes, there are common mistakes that every employer should avoid.

Typically, non-compete agreement cover four important parts:

  1. Non-dealing covenant – protection of trade-secrets, preventing a former employee from dealing with former customers/clients/suppliers;
  2. Non-solicitation covenants – prevent poaching of clients/customers/suppliers of the former employer;
  3. Non-competition covenants – prevent a former employee from working in a similar employment for a competitor;
  4. Non-poaching covenants – preventing an employee from poaching former colleagues.

As you can see, the four aspects boil down to – trade secret protection and restrictive covenants.

Non-compete Agreement: Trade Secret Protection & Restrictive Covenants

The trade secret protection in a non-disclosure agreement is designed to keep a company’s proprietary information confidential. It typically blankets company product information, sales strategy, client lists along with a list of other things that can be considered under one of the above. It prevents an employee from working with a competitor in a similar market or geographical area, for one or two years. A non-compete agreement needs to be drafted broadly covering these aspects.

Common Mistakes to Avoid

  • Laws is not static and new regulations are routinely passed in the field of employment law. If your non-compete agreement is more than twelve months old, chances are that some of the provisions in it may no longer be valid under current regulations. It’s essential to regularly review contracts and update agreements as per the latest regulations under employment law.
  • One of the most common errors employers often make is using the same standard form for every employment. Every employment contract should be created taking into account the specific employee who will be signing the agreement. The lawyer must include the employee’s position within the company, industry-experience, seniority, duties, as well as aspects like contact with clients into the employment contract. Failure to tailor the non-compete agreement means you may not adequately establish that employee’s obligations and duties to your business.
  • Similarly, worker protection laws are tailored providing different levels of benefits and guarantees for employees in different categories. Any employment contract your business creates must recognize what the employee’s status is. Moreover, it must comply with laws regarding how that employee is to be treated. Moreover, you need to carefully outline every employee’s responsibilities and benefits. If you simply create a blanket employment contract, covering part-time, temp and permanent workers and contract employees, you’re going to get in trouble with the state and federal labor and employment law. The employment contract pays a critical role in shaping an employee/worker’s role in your business.
Priyansha Mistry
Currently editor at The HR Digest Magazine. She helps HR professionals identify issues with their talent management and employment law. | Priyansha tweets at @PriyanshaMistry

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