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Non-Compete Agreement Templates

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A Non-Compete Agreement is a document that attempts to block an individual or entity from potentially entering into competition with another party. This is most common when hiring employees, as individuals will be exposed to sensitive information about an entity that could later be used against it if the employee decided to create a “like” business in the future. This document can prohibit an individual from being able to work in the same field for a period of time or indefinitely due to the “trade secrets” that are passed on by the employer.

Types

Independent Contractor Non-Compete Agreement – Between a business and a party that is not an employee (individual or entity) that agrees to conduct services while withholding sensitive information.

Employee Non-Compete Agreement – Protects a Company from hiring an individual and teaching ‘trade-secrets’ without the fear of the individual using the information against the Company by being hired by another business or going out on their own.

Release of Non-Compete Agreement – Otherwise known as a ‘release of liability’ and allows a person that is in a non-compete to escape from the confinement of working in the industry.

Forms By State

What is a Non-Compete Agreement?

In order for some companies to be successful, they need their employees to know sensitive information to perform the job at hand in order to have an edge over their competitors. If a company’s sensitive information is released or practiced by a previous employee elsewhere, it could have a damaging impact on the business. By signing a Non-Compete Agreement, it legally enforces a current or previous employee not to share, trade, or practice sensitive information.

A Non-Compete Agreement is also referred to as the following:

  • Non-Compete Agreement Template
  • Non-Compete Clause
  • Covenant Not to Compete

When to Use a Non-Compete Agreement?

Hiring new employees

Let’s say you recently started a new business and it’s starting to thrive. The reason for the business’s success is due to acquiring information that no other competitor has been able to gain. The demand for the business’s product is increasing quickly and the company is in dire need of more employees. In order for new employees to successfully execute their job, they need to know the sensitive information that gives the company such an edge over its competitors. When potential employees apply for your job, being hired would be contingent upon signing your Non-Compete Agreement. Applicants have the right to refuse to sign and as an employer, you have the right to deny employment.

Requesting from current employees

Trying to request current employees to complete a Non-Compete Agreement is a bit more tricky and complicated than when requiring new employees to do so. For example – You are the owner of an established business that has obtained confidential information pertaining to the business’s operation. Before disclosing this information to current employees, they each must agree not to share or practice this information with any other company going forth by singing a Non-Compete Agreement. Refusal to sign could result in the firing of an employee.

Is a Non Compete Legally Binding?

The legality of a non-compete agreement along with the reasonability of the requirements vary by state as they are governed by state laws not federal. There are four types of non-compete agreements:

  • Confidentiality or non-disclosure: Individual is unable to share confidential information, company specific details, trade secrets or proprietary information.
  • Non-solicitation of employees: Prevents individuals that are leaving to a new company from luring their past coworkers into their new employment company or working for a competitor.
  • Non-solicitation of customers: Individuals unable to work or sell to customers they worked with at their previous employer.
  • Non-compete: Individual may not work for another competing business in the same field or start a new business in the same field as their previous employer.

U.S. states that DO NOT recognize or enforce Non Competes

Non-Compete Agreements are not be recognized by all states. The following United States do not recognize or enforce non-compete agreements:

  • California – Exception being Trade Secrets. California Business and Professionals Code 16600
  • North Dakota
  • Oklahoma

How to get out of a non compete agreement?

Individuals may review their non-compete agreements to determine if there is a clause that allows for the employee to terminate the non-compete. However, if the individual signed a non-compete agreement that is enforceable and legal the individual is bound to the terms and conditions of the agreement. If the non-compete agreement is too vague, the individual can attempt to discuss the agreement with the employer in order to avoid a court proceeding and terminate the non-compete agreement.  A non-compete agreement is commonly taken to a court of law or challenged by the employee for the following reasons:

  • Unreasonable length of time of the non-compete. (In effect for 10, 20+ years, etc.)
  • Unreasonable geographical requirements (It covers the whole state as opposed to 5 miles of the current office location).
  • Unreasonable professions identified (Identifies food industry professions when the individual is currently in healthcare).
  • Causes undue hardship to fall unto the employee.
  • Discriminatory in nature (only required for individuals of certain race, age group or sex).
  • Deceitful inducement (employer advises an employee they wouldn’t enforce it at a later date).

Violating a Non Compete Agreement

Employee Violation

In the event an employee violates a non-compete agreement the employer can pursue legal action against the employee. Prior to the employee completing a violation, in the event they may go to a competitor, the employer may determine if negotiation is available to retain the employee and avoid legal action. If legal action is pursued, the local courts will review the non-compete agreement for validity and feasibleness. Should the court favor the employer, the rulings could impact the employee by agreeing to an injunction. The injunction is a decree the court orders to keep an individual from violating the non-compete agreement. The decree may force the individual to leave an employer, if they employed with a competitor. The court can also opt to have monetary damages be awarded. The courts will require the employer to provide proof that there was actual loss. Most commonly employers choose to have the non-compete agreement be upheld.

Employer Violation

If an employer violates the non-compete agreement the employee can pursue legal action against the employer. If the employer breaches the non-compete contract (i.e. failing to pay employee, not providing benefits, or failing to meet other agreed upon obligations), the employee is relieved of the previously agreed upon non-compete agreement. If the employee files a case in a court of law and the employer is found at fault, the employer is considered solely responsible for all legal fees incurred by both parties. Employers should consult legal counsel when creating non-compete agreements to avoid legal issues.

Laws by State

How to Write a Non-Compete Agreement

Step 1 – Purpose

The hiring representative shall submit the following information:

  • The company name
  • Recipient’s name
  • Parties must read the remaining paragraph

Step 2 – Non-Compete/Disclosure

The company’s hiring representative shall read all of the following statements. Check all applicable statements pertaining to what, specifically, will be disallowed by the recipient until the time period expiration.

  • Business Practices
  • Clients/Customers
  • General Competitor(s)
  • Specific Competitor(s)
  • Employees

Step 3 – Time Period

  • Provide the time period in which the recipient must agree to continue to maintain company confidentiality (in weeks, months, year(s)
  • Check the box reflecting the company’s preferred commencement period

Step 4 – Purchase Option

Should the company offer the recipient the opportunity to void this contract by paying an agreed fee to the company, check the applicable box and enter any required information as follows:

  • If the company wishes to offer this option to the employee, check  the first box – hiring representative  shall enter the amount to be paid by the recipient to the company in the lines provided
  • If the company would prefer not to offer the Purchase Option, check the second box in this section

Step 5 – Jurisdiction

  • The company representative must submit the specific geographical area in which the recipient will be restricted.

Step 6 – Titled Sections and Subsections

The employee will be required to read and understand the following:

  •  Confidential Information
  • Permitted Disclosure (1 through 5)
  • Confidentiality
  • Consultants and Employees Bound
  • Return of Materials
  • Remedies
  • Choice of Law – Enter the state
  • Entire Agreement

Step 7 – Signatures

Company and recipient must provide the following information in agreement:

Company

  • Hiring representative’s signature
  • Printed name and title
  • Date of signature in mm/dd/yyyy format

Recipient

  • Recipient’s signature
  • Printed name
  • Date of signature in mm/dd/yyyy format


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