Non-competition: Overview, definition and example
What is non-competition?
Non-competition refers to a contractual clause that prohibits one party, typically an employee or a business seller, from engaging in activities that compete with the other party’s business for a specified time and within a defined geographic area. These clauses are designed to protect a company’s interests, including trade secrets, client relationships, and market position.
For example, a non-competition clause in an employment agreement might prevent a former employee from working for a direct competitor within the same city for one year after leaving the company.
Why is non-competition important?
Non-competition clauses are important because they help businesses protect their competitive advantage, sensitive information, and customer base. They ensure that departing employees or business sellers do not immediately use insider knowledge or relationships to undermine the business.
However, these clauses must be reasonable in scope, duration, and geographic reach to be enforceable and avoid being overly restrictive. Including clear non-competition terms promotes fairness while safeguarding business interests.
Understanding non-competition through an example
A sales manager resigns from a company and plans to join a competitor. The employment contract includes a non-competition clause prohibiting the manager from working for a competitor in the same state for six months after resignation. This allows the original employer time to protect its client relationships and market share.
An example of a non-competition clause
Here’s how a non-competition clause might appear in a contract:
“The Employee agrees that, for a period of [Insert Time Period] following the termination of employment, they shall not engage in any business, directly or indirectly, that competes with the Employer within a radius of [Insert Geographic Area]. The Employee further agrees not to solicit the Employer’s clients or use confidential information obtained during employment.”
Conclusion
Non-competition clauses are valuable tools for protecting a business’s interests by restricting competitive activities of former employees or business sellers. When carefully drafted, these clauses balance protecting the company while being fair and enforceable. A well-defined non-competition provision fosters trust, clarity, and legal compliance, supporting the long-term success of the business.
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.