Noncompete Agreements
Noncompete agreements protect employers from losing valuable trade secrets and employees. Here's how to make sure your agreement will hold up in court.
After losing scores of valuable employees (and trade secrets) to competitors, a growing number of employers are asking, or requiring, employees to sign noncompete agreements. By signing a noncompete agreement, an employee promises not to work for a direct competitor for a specified period of time after he leaves the company. Here's the lowdown on whether it's worth asking your employees to sign one, and how to create an agreement that will pass muster with a judge.
How Noncompete Agreements Protect Your Business
Obviously, a noncompete agreement can keep your business from losing employees, but it can also protect your company's confidential information. If one of your employees has access to sensitive business information or trade secrets, you'll obviously want to prevent this employee from disclosing this information to your competitors.
A trade secret is information that gives your company a competitive advantage because it is not generally known and cannot be readily learned by other people who could benefit from it. It can be a formula, pattern, compilation, program, device, method, technique or process that you have made reasonable efforts to keep secret.
When an employee with access to trade secrets leaves -- either because the employee quit or has been fired -- he could take this information and use it to his personal advantage (and at your expense). For example, a former employee may open a competing business or may go to work for a competitor and unwittingly or deliberately divulge your hard-won keys to success. A properly drafted noncompete agreement can keep this from happening.
Note: Covenants not to compete are not enforceable against employees in California.
Since a California statute invalidates noncompete agreements except in very limited circumstances, California judges won't enforce a noncompete agreement against an employee. However, California employers can use nonsolicitation agreements and nondisclosure agreements to protect their trade secrets, client lists and employees when an employee leaves.
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