The Advantages and Disadvantages of Non-Compete Agreements

If you own a business, many aspects of your operations are directly under your supervision. But if you want to grow, some areas need to be delegated to staff. Assuming that you cannot do everything yourself, a business owner has no choice but to hire employees and share details about your processes and customers. How do you protect your investment of time, effort and money on training employees and prevent them from leaving with your confidential contacts and processes? If you want to avoid having employees quit to start their own competing business, or steal your client lists and join a competitor, we suggest that you use a non-compete agreement.

Advantages of a Non-Compete Agreement

#1: They keep ex-employees from competing. Perhaps the most obvious perk of having a non-compete agreement is that it can prevent your valuable employees from leaving to work with a competitor. If an employee should leave or start their own competing business, a non-compete can also save you from the loss of key customers.

#2: They protect your trade secrets. A “trade secret” can be a formula, pattern, compilation, program, device, method, technique, or process, that has value because it is not generally known and because it is being kept secret. When a business owner shares this kind of information, it is important to try to maintain its confidentiality by using a non-disclosure agreement. But practically speaking, if a former employee goes to work with a competitor, a non-disclosure agreement is not enough. By combining a non-disclosure with a non-compete agreement, you can be certain that former employees cannot exploit information you gave them for the benefit of another.

#3: They can help you retain employees. With a non-compete agreement in place, employees may be less likely to leave. You can even put a payback clause in the agreement, which will require your employees to reimburse your training costs if they leave before a prescribed period of time has passed. As an employer, you might find these tools useful to protect the investment you’ve put in your people.

Disadvantages of a Non-Compete Agreement

#1: They have limitations. The law requires some limitations on non-compete agreements: they must be reasonable in length of time, geographic area, and scope of subject matter. They are generally considered to be reasonable when their terms are two years or less, but eventually, the former employee will probably be allowed to work for or become a competitor.

#2: They may be a turn-off. Your high-performing employees and in-demand job candidates may not take kindly to the prospect of signing a non-compete agreement. They may prefer instead to work for an employer that won’t impose this type of restriction, so the requirement of a non-compete can sometimes lose you potential and existing employees.

#3: They can be costly to enforce. In order to enforce any contract, you have to sue the breaching party. If the former employee cannot pay a judgment, or you cannot establish damages, you may expend a great deal of time and energy to obtain a worthless judgment. It is important to weigh the costs against the benefits before you begin litigation with your attorney..

It takes a knowledgeable attorney to draft an agreement that benefits your unique business, playing to its particular strengths and helping to overcome its unique challenges. If you would like to start using this tool, feel free to contact us and we do our best to shield you from risk with a non-compete agreement.

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Written by Gersten and Muir

Gersten and Muir

The attorneys of Gersten & Muir, P.A. are passionate advocates for businesses throughout Miami-Dade County. We provide numerous business legal services to help make your company grow and flourish. We are knowledgeable and dedicated to finding solutions that fit your company’s needs.