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Understanding the Basics of Non-Compete Clause

Many employers will ask all of their new employees to sign a non-compete agreement. These contracts seek to limit any competition the employer will likely face from any previous employees who have intimate knowledge of how their business operates, and as a result, are in a great position to steal customers, clients, and even other employees. So, it’s easy to see why businesses want employees to sign them.

However, a non-compete agreement can also give the employer permission to control their former employees long after they have left the business. This violates people’s rights to make a living and goes against our country’s honored traditions of free enterprise. For this reason, some states don\’t allow a business to ask their employees to sign non-compete agreements at all.

Those states that do allow them will not enforce a non-compete clause that lasts for an extended period of time. They also will not allow an agreement that covers a large territory or one that places too many restrictions on an employee’s right to seek better opportunities within their chosen profession in the future.

At Motiva Business LAw, we support both employers and employees in legal cases involving non-compete agreements, so click here to contact us or call us at (630) 517-5529.

What Is A Non-Compete Clause (NCC)?

For Employers

Employers will ask their employees to sign non-compete clauses in an attempt to mitigate the risk of entrusting them with confidential and valuable material.
They are frequently used when consultants and contractors are hired on a temporary basis to work on projects. Due to the fact that many of them work within one specific field, without these legally binding contracts, valuable material (such as client lists, marketing plans, and trade secrets) could be passed on to rival businesses.

For Employees

A non-compete agreement should be reasonable and should not place too many restrictions on the employee who signs it. The employee could also receive a benefit (e.g., stock options, additional compensation, acceleration of benefits) as a reward for agreeing to and fulfilling the terms of the non-compete agreement. Therefore, with the support of the right lawyer, a non-compete agreement can be beneficial to both parties.

How Enforceable Is An NCC?

In order for a non-compete agreement to be enforceable, it must be reasonable. A judge will determine what is reasonable on a case-by-case basis, but they will consider some specific factors.
Common conditions found in a non-compete clause include:

Timeframe – While there is no bright line rule for what is considered to be reasonable timeframe stIllinois Courts have noted that up to 2 years is reasonable, but it can vary depending on the specific facts of the case and the industry that the parties operate in.

Geographic Scope – The geographic restriction for a non-compete agreement must be reasonable and such determination is fact-specific. In some cases, it may be considered reasonable for a restriction to be world-wide and in some cases, going beyond a few miles may be considered unreasonable.

Definition of Competitor – It is common for businesses to place restrictions on their direct competitors; however, they cannot place restrictions on the general field of employment.

Restriction Must be No Greater Than to Protect Legitimate Business Interest – The employer must demonstrate that the employee’s non-agreement clause is necessary to protect a legitimate business interest. In other words, a non-compete clause cannot be used to simply prevent an employee from competing in general. It is more likely that a non-compete clause is enforceable if the employer limits the solicitation clause to the employee being prohibited only with the employer’s clients that the employee has serviced or had direct important information about.

Adequate Compensation– Employers must adequately compensate employees in exchange for abiding by the non-compete agreement (known as “consideration.”). The amount should be appropriately reflective of the restrictions that have been placed on them during their time at the company. This is different than other types contracts where courts do not take into account the amount of the consideration.

Goal of A Non-Compete Clause

Generally speaking, the goal of all non-compete agreements is to protect the business, but they can also incentivize innovation. If an employer is comfortable in the knowledge that their business lists and ideas are legally protected, they are far more likely to innovate without fear of other companies stealing their ideas. However, this could have an effect on an employee’s ability to have the freedom to progress in their chosen profession. This is why a lawyer is so valuable in these cases; their knowledge and skill are invaluable in helping to find the perfect balance.

Information Needed in Drafting An NCC

A non-compete clause must provide the following information:

  • The effective date and the duration of the non-compete restrictions.
  • The reason for the non-compete agreement.
  • The names and all other details of the individuals involved.
  • The specific interest that the non-compete clause will protect.
  • The exact restrictions the employers want to place on the employee.
  • The specific geographic area covered by the non-compete agreement

What to Look for In Non-Compete Agreements

Some key clauses and other information that should be included in a non-compete agreement include:

Use of A Confidentiality Clause

Otherwise known as a “non-disclosure agreement,” a confidentiality clause seeks to prevent employees from sharing confidential information acquired or accessed during their employment.

Use of A Non-Solicitation Clause

A non-solicitation clause is sometimes necessary to prevent employees from soliciting others by using confidential trade secret information.

Geographic scope

A non-compete clause will place restrictions on the employee’s ability to work within a specific geographic scope to mitigate the risk of sharing valuable information with key competitors. However, as previously mentioned, this must be within reason.

Specific restrictive acts

Each individual business will have its own ideas on what specific restrictive acts should be included in a non-compete clause. However, most of these contracts will aim to prevent an employee from soliciting information, sharing confidential information, taking clients or valuable employees from the business, or working for a key competitor. Again, note that not all of these restrictions are necessarily enforceable.

Proper Representation Makes A Big Difference

Whether you are an employee or an employer, a high-quality business lawyer can support you by reviewing any non-compete agreement you have been offered before you sign it. This helps ensure that the rights of both parties are being adequately protected..

At Motiva Business Law, we offer high-quality legal representation to employees and businesses alike. We can review complex employment contracts, consider how they affect you, and work with all parties involved to reach an agreement that serves your best interests

Danya Shakfeh, for example, is an attorney on our team that has over 10 years of experience in business law. Danya is a business owner herself, and she understands the importance of addressing and resolving employment contract issues and disputes correctly.

Attorney Shakfeh is Experienced in Evaluating Non-Compete Agreements

If you have any questions or concerns regarding a non-compete agreement, contacting an experienced lawyer should be the first thing you do with the other party to come to an agreement that results in the best outcome for you.

Need assistance with non-compete agreements?
Give us a call today.

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