Non Compete Clause: Good or Bad
July 25, 2011
Non-compete agreements are a particularly important issue in today’s business world. Three trends that make non-competes especially important in the current business environment are a change in the definition of competition, the lack of employee loyalty, and the importance of relationship-based selling. As long as these agreements are done according to state law, they can be enforceable in the court of law. Any company that believes it has a competitive lead should consider using non-competes to protect themselves from employees who can walk out the door with their trade secrets. Many businesses today require employees to sign non-compete clauses when hired to protect the company, but it can have many negative effects for the employee as well. Non-Compete Agreements are contracts between an employer and employee. Employees promise not to take what they learn while working for you and use it against you while working for a competitor. A typical non-compete agreement states the employee agrees not to work for rivals, solicit business from current clients, or otherwise compete with you for some period, such as two years, after leaving your company. Key principles that almost all states go by when it comes to non-compete clauses are reasonableness rule, independent consideration, duration, distance, blue pencil rule, and liability for new employers.(lawyers.com) All of this is done so that way the company is protected from anyone trying to steal important trade secrets to share with their new employer. The company that I currently work for has a non-compete clause. It states that I cannot work for another payday loan company one year from the date of termination and I cannot open a similar company in any town in the state that I work. There is even a part in the clause to where you could not open, manage, operate, finance, or even be associated with another company like the company I am employed by. In non-compete agreements it seems the employer is always going to benefit from the contract. Employees can either win or lose when signing a non-compete. “Employers benefit from non-compete agreements because they keep a former employee from sharing industry experience, knowledge, trade secrets, client lists, strategic plans, and other information that is confidential and proprietary to the employer with competitors.” (About.com) Employees can benefit from these clauses because of job stability. Obtaining a job these days is very difficult so many people are willing to sign a non-compete if they have no other choices. On the other hand, employees are not looking at the bigger picture. When signing these documents people do not realize they are preventing themselves to take on a better job if one comes along. If in a few months from being hired a new job opening elsewhere becomes available with higher pay, you will have to pass up the advancement opportunity even though you are well qualified with no intentions of sharing company information. Besides time and space away from a job with similarities to the one you signed a non-compete there are other things that can be covered in these clauses. A non compete may also cover additional factors such as: limiting a former employee’s ability to recruit the employer’s staff to a competing enterprise, prohibits the former employee from calling on ex-customers, disallow employment in a particular region of the country, and almost always prohibits the former employee from working on or developing similar products or starting a competing business. Many people think that non-competes cannot hold up in the court of law. However, if they are made properly and meet certain basic issues they can withhold in court. Employees may face legal penalties if they violate a non-compete clause. These penalties include money damages or an injunction that prevents further violations. Along with...
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