How to Create Non-Compete Agreements

Posted by Hecht Walker, P.C.
Posted on August 30, 2016


An employment contract should precisely spell out the rights and obligations of both employees and employers. A written employment contract is a legal agreement negotiated and signed by both the employer and the employee. In recent years, after losing too many valuable employees – and too much intellectual property – to the competition, companies are increasingly asking – and sometimes requiring – their employees and job applicants to sign employment contracts that include non-compete agreements.

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Also called a “covenant not to compete,” a non-compete agreement is essentially an employee’s pledge to an employer that he or she will not go to work for a direct competitor for a certain period of time after leaving the employer. If you are a business owner who is considering non-compete agreements for your employees, you face two questions. Is it really worth the effort, and if so, how do you draft a non-compete agreement that the courts will enforce?

ARE NON-COMPETE AGREEMENTS WORTH THE EFFORT?

You’ll have to decide for yourself if drafting and having employees sign a non-compete agreement is worth the effort. Clearly, one benefit is that non-compete agreements will impair the ability of your competitors to lure valuable employees away from you. A non-compete agreement is also legal protection for your confidential data. Almost every company needs an effective strategy for keeping sensitive information and trade secrets out of the hands of the competition.

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Trade secrets are not easy to protect. Anything from a list of clients or contractors to a unique electronic circuit design or a complicated chemical formula can be a trade secret. A trade secret is typically something that gives your company its edge or uniqueness, and as the business owner, it’s something you want to be kept secret. When an employee who knows or has access to your trade secrets leaves, he or she could take and use your trade secret for personal gain. If that ex-employee is hired by a competitor, your trade secret will probably be disclosed – unless you insisted on having that employee sign a properly drafted non-compete agreement.

In California, non-compete agreements can almost never be enforced against employees. California law does not recognize non-compete agreements except in very rare and precisely spelled out circumstances, but the law in the state of Georgia gives more rights to employers. In this state, businesses have the right to sue ex-employees for breach of contract, including the breach of non-compete agreements, and employers in Georgia may also sue for revenue lost through the breach of a non-compete agreement.

WHAT MUST BE INCLUDED IN A NON-COMPETE AGREEMENT?

Non-compete agreements can legally protect an employer’s trade secrets, but the language of a non-compete agreement cannot be open-ended, vague, or ambiguous in any way; no employer can restrict an ex employee’s work options everywhere and forever. The law puts a high priority on every person’s freedom to earn a living, so the language of non-compete agreements must be extremely narrow, limited, and precise. An enforceable non-compete agreement in Georgia must include three considerations:

  1. Geography: In most cases, a non-compete agreement must specify a particular community, region, or state(s) where the ex-employee cannot launch a new business in direct competition with the ex-employer. The geographic range specified will depend on the nature and range of the employer’s business.
  2. Duration: A non-compete agreement must have an expiration date, which is typically from six months to two years. Georgia employers should know that in most cases, a non-compete period exceeding two years will not be enforced by this state’s courts.
  3. Scope: Non-compete agreements must use exacting language to define precisely what employment activities an ex-employee may and may not engage in for the duration of the non-compete period.

Before a business owner decides to require non-compete agreements, he or she should be sure that there’s a genuinely good reason for the requirement. Don’t require non-compete agreements just to keep employees from leaving or to penalize them if they do. The most common and one of the best business reasons for requiring a non-compete agreement is to keep an ex-employee from poaching your customers or clients to establish his or her own new business. If you can’t provide a judge with a persuasive reason why you required an employee to sign a non-compete agreement, that judge may have difficulty finding a good legal reason to enforce the agreement.

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WHO BENEFITS FROM A NON-COMPETE AGREEMENT?

Employment contracts are “agreements” – hence, they must offer a benefit to both parties. The law requires employers to provide something in return for an employee’s signature on a non-compete agreement. If a job offer hinges on the non-compete agreement, hiring the applicant who signs the agreement satisfies that requirement. If someone is already your employee, an employer will need to link signing the non-compete agreement to a raise, a promotion, or to some other tangible benefit.

A non-compete agreement must be “reasonable” in the eyes of a judge, so don’t ask for too much. The courts will not enforce an unreasonable agreement anyway, and it won’t be worth anything. Instead, make sure that you have an agreement that simply meets your most basic business needs. The legal limits placed on non-compete agreements are there to protect workers from unethical employers. So long as a non-compete agreement doesn’t ask for too much and exists for a genuine business reason, courts in the state of Georgia will almost always enforce it.

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In an employment contract, every line and every word is important. Employers need to have precisely-worded employment contracts that are drafted exclusively with your business needs in mind. That’s one reason why the advice and services of an experienced business attorney is imperative. A good business lawyer can protect your operation by creating employment contracts that satisfy your business needs and are not subject to misinterpretation.

In Georgia, employers should have an experienced Atlanta business attorney review every line and every word of your current employment contracts. If changes are needed, your attorney will make recommendations. An Atlanta business attorney should also draft or review all of your employment contracts in the future – before anyone signs them. The modest expense of sound legal advice is a small price to pay for peace of mind, and it’s a wise investment against legal difficulties in the future.

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