Common Sense Considerations

While noncompete agreements are a very effective way to protect your business's trade secrets, you should know that the legal system puts a high value on a person's right to earn a living. If your noncompete agreement ends up under a legal microscope, it will have to pass some legal hurdles.

Have a Good Business Reason

First and foremost, you need a good business reason for asking an employee to sign the agreement -- the agreement shouldn't simply punish an employee for leaving your company. Usually, your business reason will be to protect your trade secrets or a customer base you've worked long and hard to develop.

If you're selective about the employees who sign noncompete agreements, you'll up your chances of success, because judges are much more likely to enforce noncompete agreements against employees who truly possess inside information.

Provide a Benefit to the Employee

Next, you must provide a benefit to the employee in exchange for his or her promise not to compete against you. Making a job offer contingent on signing a noncompete agreement probably satisfies this requirement, since the employee is receiving a benefit (a job) in exchange for the promise. It's more difficult to provide an existing employee with a benefit, but generally, coupling the agreement with a promotion or a raise will do the trick.

Noncompete Agreements Must Be Reasonable

A noncompete agreement must also be "reasonable." What's reasonable? One that can't:

• last too long
• cover too wide a geographic area, or
• prohibit a former employee from engaging in too many types of businesses.

Generally, the biggest issue with noncompete agreements is how long the noncompete agreement lasts. While there's no set rule, noncompetes ranging from six months to two years are generally considered "reasonable," while anything longer than that will receive closer scrutiny. Outside of the employment context, longer noncompete agreements will often be enforced, such as in connection with the sale of a business.