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3 mistakes employers often make with non-compete agreements

On Behalf of | Nov 9, 2021 | Firm News |

Having your employee sign a non-compete agreement helps protect your business. Especially when a worker has access to your trade secrets, you want to protect the information that gives your business a competitive edge.

Having new or promoted staff members sign non-compete agreements can prevent them from using information learned at your business to start their own company or to secure work at a competitor’s business. However, in order for the agreement to benefit your company, it has to be valid and enforceable.

Mistakes that you make with the agreement could limit what protection it offers your business. What three mistakes do companies commonly make when executing non-compete agreements with their employees?

They use generic, downloaded documents they found online

Perhaps the most pervasive mistake modern employers make with their employment contracts is the use of generic documents they find on the internet. Boilerplate documents may be easy to access and fast to fill out, but they may not protect your company adequately.

You have no way of knowing whether the language used in that restrictive covenant is enforceable or whether it will leave your company vulnerable. Drafting customized employment contracts for your company helps ensure you don’t accidentally have workers sign an unenforceable agreement.

They set terms that are too broad to be enforceable

One of the biggest pitfalls in a non-compete agreement is making the impact of the document too significant. This restrictive covenant will limit what your worker can earn in the future, so those limitations need to be reasonable.

I’m out of time and a specific geographic area will increase the likelihood that the courts will readily enforce your agreement if a worker violates it and then tries to claim that it created a hardship for them.

They don’t actually offer something of value for signing

An employee agreeing to restrict their future economic activity should receive something of equal approximate value for their concessions. Offering workers valuable consideration when they sign an employment contract is crucial to the enforceability of the document.

The worker could receive the job offer or promotion as the consideration for their concessions if they sign a contract as part of your hiring or promotion process. You might also offer a small bonus or even give a one-time extra day of paid time off if you have to negotiate a contract with an existing employee.

Making sure that you avoid these three common mistakes can help you maximize the protection of adding a restrictive covenant to your employment contract.