What is a Non-Compete?
A Non-Compete Agreement is a kind of restrictive covenant that formalises an agreement commonly made between an employee and employer where the employee agrees to not enter into competition with the employer when they leave the company.
By signing a Non-Compete Agreement, an employee agrees not to work for a competitor during or after their current employment ends, within certain limitations.
You can create a Non-Compete Agreement for several different arrangement types, including:
- Employment/Service: a non-compete for an employee or contractor
- Purchase/Sale: a non-compete for commercial negotiation
- Invention: a non-compete for the disclosure of intellectual property
What is the point of a non-compete?
A Non-Compete Agreement serves to protect a company against misuse of its private business information.
Whenever two parties share sensitive information, there is potential for one party to exploit that information to gain a competitive advantage. This non-compete agreement
helps formalise the relationship and provide legal remedies in the event of a breach.
This agreement prohibits the employee from entering markets or starting businesses that might cause the employee to gain a competitive advantage against their former employer. For instance, the employee could gain an unfair advantage by exploiting trade secrets or other confidential information.
How long is a standard Non-Compete Agreement?
Employers can create a Non-Compete Agreement for as long as they wish. Having said that, if a Non-Compete Agreement limits a former employee for too long, it’s unlikely that a court will enforce the document.
Judges will likely consider a period of six months to a year to be a reasonable amount of time. The time period you choose should reasonably protect your company and make sense in your industry. As a result, there isn’t a standard time period for a Non-Compete Agreement.
Are non-competes enforceable in the UK?
Courts may not enforce a non-compete clause in the UK if:
- The effect could be harmful to the public (if it restricts commerce and depresses the local economy)
- The scope is broader than necessary to protect the employer
- The restriction would cause undue hardship on the employee (too difficult for the employee to find a new job)
- The agreement has unreasonable time or geographic restrictions
For example, consider a worker at a telecoms provider. The company includes a clause in the Employment Contract that restricts the employee from working for a competing provider for a certain amount of time. Courts may consider the restriction reasonable for a top-level executive with access to lots of information about the company, such as business plans or financial information. However, even in that case, courts may consider it unreasonable if the contract completely restricts working in the telecoms sector if the employee leaves the company.
However, courts generally consider a non-compete to be a legally binding document. A judge should uphold the contract, as long as it isn’t too broad or restricting.
How do you write a non-compete clause?
If you are hiring someone with a Non-Compete Agreement, there are a few things to consider:
- Keep your restrictions reasonable: Be reasonable with your restrictions and how long you hold ex-employees to them. Consider reasonable geographical restrictions in your clause.
- Consider your industry: Will you provide industry-specific training to your employees or give them access to trade secrets that would give their future employees an advantage? If not, there might not be grounds for a non-compete.
- Contracts should offer consideration: Are you offering something (such as an Employment Offer) in exchange for signing a non-compete? It may be difficult to ask a current employee to sign this contract without providing some form of compensation, such as a bonus or additional annual leave.
- Avoid ambiguity: Vague clauses are difficult to uphold. Be specific when creating your non-compete. It’s unlikely that a court will uphold broad, vague restrictions.
- Make sure it is necessary: Non-Compete Agreements are meant to protect businesses. The court might ask a company why a clause is necessary for its protection if a former employee challenges the non-compete.
Decide the terms of your non-compete clause, including:
- The length of the restrictions
- Where the employee is restricted from competing
You and the other party must sign the agreement. You might also wish to have a witness sign the document.
Provide information on both you (the organisation/individual) and the other party, including details like a specific job description. These details should make it clear why it’s reasonable for the other party to have restrictions.
You can also choose to insert a non-solicitation clause. A non-solicitation agreement prevents the employee from inducing other employees or contractors from leaving the employer or from interfering with the employer's relationship with other employees in general. This means that the employee cannot invite the employer's staff to move to another workplace.
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