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Non-compete agreements: legal guidelines

by on
in Employment Law,Human Resources

Non-compete agreements place legal contractual reins on ex-employees who are setting up competing firms or going to work for competitors. Non-disclosure agreements can be separate from non-compete agreements and restrict the disclosure of trade secrets, marketing plans, and confidential information. Non-disclosure agreements can be stand-alone agreements or just incorporated into an employee handbook.

1. What do the courts look at when determining whether a non-compete agreement is enforceable?

Some factors the courts look at when determining whether a non-compete agreement is enforceable:

  1. The agreement protects a legitimate business interest, such as confidential information or long-standing customer relations. The information is not available to the general public or to all employees.
  2. The agreement is reasonable as to time and geographic scope.
  3. The agreement is applied and enforced consistently. Requiring some employees to sign agreements, but not others in similar jobs, won't usually stand up in court. The same is true for enforcement, which must be uniform.
  4. The agreement is offered at the start of employment. Incumbent employees should be given some consideration when required to sign non-compete agreements.
  5. The agreement applies more severe restrictions to higher-level employees. The more critical the job and the information being handled, the greater the time and distance restrictions you should impose.

2. When is a non-disclosure agreement necessary?

To determine whether company information needs non-disclosure protection, answer the following questions. The more affirmative answers you have, the more legitimate a non-disclosure agreement may be.

  • Is knowledge of the information greatly limited outside of the company?
  • Is knowledge of the information purposely limited even within the company?
  • Does the company take reasonable measures to protect the secrecy of the information?
  • Is the information very valuable to the company and its competitors?
  • Did it cost a great deal in time, money, or effort to develop the information?
  • Would it be hard for others to obtain or produce the information?

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