Non-compete: Overview, definition, and example
What is a non-compete?
A non-compete is a legal agreement or clause that prevents an individual (such as an employee, contractor, or business owner) from working for or starting a competing business within a certain time frame and geographical area after leaving a company or ending a business relationship. The purpose of a non-compete agreement is to protect a company’s confidential information, trade secrets, and business interests by limiting the ability of former employees or business partners to use what they've learned to compete directly with the company.
In simpler terms, a non-compete is a promise not to work for or create a competing business for a specific period of time after leaving a job or business.
Why is a non-compete important?
A non-compete is important because it helps businesses protect their intellectual property, customer relationships, and proprietary information. By restricting former employees or business partners from starting a competing business or working for competitors, a company can maintain its competitive edge and prevent the loss of valuable resources. However, non-competes must be reasonable in terms of time, geography, and scope to be enforceable in court.
For SMB owners, using non-compete agreements can help safeguard critical business information and prevent former employees or partners from directly competing against the company.
Understanding non-compete through an example
Let’s say you own a tech company, and one of your employees has access to sensitive company data and customer lists. Before hiring them, you have them sign a non-compete agreement that states they cannot work for a competing company or start their own similar business for one year after leaving your company and within 50 miles of your business. If the employee leaves your company and starts a competing tech firm within that area, the non-compete agreement would prevent them from doing so, helping protect your business from direct competition.
In this case, the non-compete helps prevent the employee from using confidential information to compete with your business immediately after leaving.
Example of a non-compete clause
Here’s an example of what a non-compete clause might look like in an employment agreement:
“The Employee agrees that for a period of [X] years following the termination of their employment with the Company, they will not, within [geographic area], directly or indirectly engage in any business that competes with the Company’s operations. This restriction applies to working for a competitor, starting a competing business, or soliciting the Company’s customers or employees.”
Conclusion
A non-compete agreement is a valuable tool for protecting business interests, confidential information, and competitive advantage. For SMB owners, having a non-compete in place with employees or business partners can help prevent the misuse of business resources or knowledge after they leave the company. However, it’s important to ensure that non-compete clauses are reasonable in scope and duration to be enforceable and fair to both parties involved.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.