Non-competition agreements: Overview, definition, and example
What is a non-competition agreement?
A non-competition agreement (or non-compete agreement) is a contract in which an employee, contractor, or business agrees not to compete with another party—usually an employer—for a certain period, within a specific geographic area, and in a particular industry. These agreements are designed to protect a company's trade secrets, confidential information, and competitive position.
For example, a tech company might require its engineers to sign a non-compete agreement preventing them from working for a direct competitor within one year of leaving the company.
Why is a non-competition agreement important?
Non-competition agreements help businesses safeguard their proprietary information and maintain a competitive edge. Without these agreements, an employee could leave a company, join a competitor, and use insider knowledge to gain an unfair advantage.
For businesses, non-competes are particularly valuable in industries where innovation, client relationships, and specialized knowledge play a crucial role. However, they must be reasonable in scope, duration, and geographic reach to be enforceable.
Understanding a non-competition agreement through an example
Imagine a marketing agency hires a senior strategist and requires them to sign a non-competition agreement. The agreement states that if the employee leaves, they cannot work for another marketing agency within the same city for one year.
If the strategist quits after six months and tries to start their own competing agency in the same city, the original employer could enforce the non-compete, preventing them from operating within that area until the restriction expires.
In another case, a software company requires a developer to sign a non-compete preventing them from working for any direct competitors for 18 months after leaving. However, if the restriction is too broad (such as banning work in the entire tech industry worldwide), a court may find it unenforceable.
An example of a non-competition agreement clause
Here’s how a clause like this might appear in a contract:
“During the term of this Agreement and for a period of [X] months following termination, the Employee shall not engage in, own, manage, operate, or be employed by any business that directly competes with the Employer within [defined geographic area]. This restriction is intended to protect the Employer’s legitimate business interests, including trade secrets and client relationships.”
Conclusion
Non-competition agreements are essential for businesses to protect their intellectual property, trade secrets, and client relationships. They set clear boundaries for employees and contractors, preventing unfair competition after leaving a company. However, for these agreements to be enforceable, they must be reasonable in duration, geographic scope, and industry restrictions.
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.