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Ensuring you have a valid non-compete agreement

Your business is doing well enough that you are ready to begin expanding your staff. This is a difficult decision because more people on board means you have to rely on others, delegate duties and promote your workers. However, if you want your business to grow, you have to place a certain amount of trust in employees.

Perhaps your biggest concern with hiring new employees is that you've spent so much time developing your product or service, and now you worry that an employee will take company secrets and expose them to your business competitors. Creating non-compete agreements to include in your employment contracts may be your best solution.

Will it hold up in court?

When you hire a new employee, you can request that he or she sign an agreement promising not to work for your competitors. The objective is to prevent former employees from taking your trade secrets to other businesses or from starting their own companies using processes you developed.

The legal validity of any contract is essential. After all, the whole purpose of any contract is to prove that an agreement exists in the event of a dispute. If your employment contract contains a non-compete agreement, it must remain within the boundaries of the law.

Obviously, you aren't going to demand your employee's first-born child or require a worker to leave the country if they quit. Nevertheless, there are certain lines the law will not allow you to cross when drafting a non-compete agreement. For example:

  • You can't indefinitely prohibit an employee from working in your trade. The more reasonable the time limit you place on your employee (for example, three years), the more likely a court will uphold your contract.
  • You can't place unlimited geographic restrictions on your employee. Depending on the type of company you run, the court will determine what is a reasonable distance for your former employee to seek similar work. Your contract may specify a certain number of miles, but it isn't likely that a court will agree to prohibiting your employee from seeking work in the entire state of Texas.
  • You can't forbid an employee from making a living using his or her skills or training. By limiting the agreement to a particular activity within your industry, you will probably find the court more agreeable to your terms.
  • You must have a legitimate interest to protect. If your employee gained skills, knowledge or relationships with customers exclusively through your business, you may have a valid non-compete contract.

Since non-compete contracts come under intense scrutiny in a court of law, you will have a decided advantage if you have the advice and guidance of a business and employment law attorney as you draft your agreement.

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