5 Things to Consider When Drafting a Non-Compete Agreement (NCA)
Non-compete agreements (NCAs) are a crucial part of running a business. However, while some benefit from requiring an employee or independent contractor to sign an NCA, other businesses may find such agreements pointless.
Typically, businesses use non-compete agreements prior to hiring a prospective employee or independent contractor to do a job. An NCA is what prevents the worker from taking away your business or stealing your ideas or clients.
For example, if you hire a website developer to help build your company’s website, you will most likely have to share your business plan as well as other confidential information. An NCA would prevent that developer from sharing your business plan or sensitive info with competitors or becoming your competitor while profiting off your company’s ideas, clients, or info.
Unfortunately, many business owners do not understand how non-compete agreements, also known as non-compete clauses (NCC)б work and what needs to be included in the agreement to make it valid and legally binding.
What is a Non-Compete Agreement?
An NCA or NCC is a legally-binding contract in which the employer requires its employee or independent contractor not to work with its rival company or start a similar business for a specific period of time after quitting, getting fired, or otherwise losing the job.
The main purpose of an NCA is to protect your company’s confidential information, including trade secrets, business plans, client lists, and prevent your former employees or independent contractors from exploiting that information when working for a competitor or starting a similar business.
What Should a Valid NCA Include?
In order to ensure that your non-compete agreement is valid and enforceable, you will need to work with a knowledgeable employment law attorney. A valid NCA needs to include the following information:
- The names and addresses of both parties ( the party requesting the agreement and the non-competing party)
- The date of signing the NCA
- The effective duration of the NCA
- The reason for creating the agreement
- The geographic area covered by the NCA (e.g., the agreement only prohibits the non-competing party from working for a competitor in Florida or the United States)
- The compensation for signing the agreement (or the consequences of not signing it)
Things to Consider When Drafting a Non-Compete Agreement
When it comes to creating a non-compete agreement to protect your business from unfair competition, consider the following things:
- NCCs need only be for key employees. Depending on circumstances, requiring all employees to sign NCCs upon hiring may not be a legally binding agreement. Instead, consider drafting a specific agreement for key employees.
- Your NCC needs to be reasonable in terms of duration and geographical area. Some states, including California, prohibit the enforcement of non-compete agreements and other restrictive covenants by employers against employees. Under Florida law, NCCs are enforceable as long as they are reasonable in terms of duration and geographical area, and are backed up by legitimate business interest.
- The NCC should not be too restrictive. When a non-compete agreement is unreasonably restrictive in its nature, it is less likely to hold up in court.
- Make sure the non-competing party knows what they are signing. Your employee or independent contractor must clearly understand what they are signing and what the agreement means.
- Remind the non-competing party of the NCC upon leaving. Employees who are leaving their employer may forget that they signed an NCC prior to getting hired. For this purpose, you need to remind the outgoing employee of the agreement.
Talk to a West Palm Beach employment law attorney to help you draft a valid and legally binding non-compete agreement in Florida. Contact Pike & Lustig, LLP, for a case evaluation if you are considering drafting an NCC in Florida. Call at 561-291-8298.