Noncompete Clause

By Entrepreneur Staff

Noncompete Clause Definition:

Contracts between you and your employees in which your employees promise not to take what they learn while working for you and use it against you while working for a competitor. A typical noncompete agreement says the employee agrees not to work for rivals, solicit business from current clients, or otherwise compete with you for some period of time, such as a year, after leaving your company.

If you're worried about losing your key employees or trade secrets to a competitor, you might think about having those employees sign a noncompete agreement, which would prevent them from immediately leaving your employ and working for one of your rivals or using the information they gleaned on the job against you in some way. Although some companies have all their employees sign the same noncompete agreement when they join, this probably isn't the best way to go about it. General agreements signed by all employees tend not to hold up in court. So it is better to write noncompete agreements only for key employees. And make them specific.

You should also take care to learn and understand the laws regarding noncompete agreements in any state in which you do business. For example, California and Texas state laws tend not to support employers in disputes involving noncompete agreements.

Don't keep your noncompete agreements secret. Let employees know the company's policy. Let competitors know it, too, so they won't be tempted to raid your employees. A company that hires a rival's employee in violation of a noncompete agreement may be faced with a lawsuit. Finally, when employees are leaving the company, remind them of the noncompete agreement they signed and go over it with them to make sure they realize what restrictions they may have to observe.

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