How to Decide When Someone Should Sign a Non-Compete Agreement

Non-Compete Agreement

Non-compete agreements sometimes have a bad reputation. The way former employees tell it in court (and to anyone who will listen), a non-compete agreement is an evil device of selfish, soulless, money-grubbing employers. But when you’ve poured every cent of your savings into a company, the last thing you want is for an employee you believed to be loyal to take all of your plans, formulas, and ideas and sell them to the highest bidder – in other words, your competitors. Non-compete agreements only last for a certain length of time and generally only cover a specified geographic region, so it’s not as if you’re dooming someone to be chained to your company for all time OR ELSE. They can protect what you’ve worked so hard for, and they don’t have to be unfair to either of you. Here are three questions to ask yourself before you decide that an employee should sign a non-compete agreement.

Is It Necessary for Your Industry?

While nearly every industry will have some companies that use non-compete agreements, there are certain industries that have a particular need for them. For example, any company that relies on sales professionals for new leads or deals with patented technologies is likely to require their employees to sign a non-compete. While you may personally wish that you could simply trust the people working with you to have the same undying passion for your business that you do, chances are that they’re not perfect and may be ready to jump at the chance to make more money, move cities, or quit for other unknown reasons. Consider researching what your competitors require when it comes to non-compete agreements before you make the decision.

Does Your Employee Have Access to Trade Secrets?

Since asking a potential employee to sign a non-compete can scare them away from taking the job (or turn them against you if they’ve already got it), you’ll want to think carefully about whether or not you really stand to benefit from having one signed. If one of your competitors was able to learn the recipe for your hot sauce or discover the plans for how to build the robot if your employee left, then that’s a problem for you, and it will be clear to your employee that you have a good reason for asking them to sign a non-compete.

Can You Provide a Benefit to the Employee in Exchange for Their Signature?

While simply offering (or continuing to offer) your employee a job is generally considered sufficient by the courts, you may want to offer existing employees a promotion or raise in acknowledgment of their willingness to sign a non-compete agreement. If the employee is just being hired on, then it’s a good idea to offer them a bonus. The more transparent you can be in explaining why you’re requiring the agreement, the less likely both of you are to feel frustrated later, and the more likely you both are to be glad that it was signed.