Non-Compete Contract Template
A non-compete agreement (non-competition agreement or non-compete clause) serves as a formal contract between two parties where a new employee or contractor agrees not to compete with the new employer’s company during or after the working relationship. The purpose of a non-compete is to protect a company’s legitimate business interest. There are many industries where such agreements can be utilized. It shields the company from any direct competition, protecting their trade secrets, intellectual property, and other confidential information.
When creating a non-compete, you will need the following information:
- The name(s) of the individual(s) who is prohibited from competing
- The date the agreement is to become effective (“Effective Date”)
- The reason for the agreement
- List of direct competitors, industries, and market practices
- The duration the individual is prohibited from competing (“Restrictive Period”)
- The geographical area the agreement covers (“Restricted Territory”)
Why does your company need a non-compete agreement?
A non-compete agreement protects your company by preventing former employees or contractors from working in direct competition with a competing business, which could have some negative economic consequences. A non-compete agreement is typically between an employer and employee, but it can also be used between a company and an independent contractor — company’s use a non-compete agreement to protect their legitimate interests and sensitive information from unfair competition. A company usually presents a non-compete agreement to a new employee or contractor at the beginning of the hiring process or after a job offer. It is a good practice pointer to welcome any questions and address any concerns the employee or contractor may have.
Non-Compete agreements are typically paired with an employment agreement, employment contract, confidentiality agreement, or a non-disclosure agreement. Sometimes the employment agreement will include a non-compete clause, usually referred to as a “restrictive covenant.”
It is essential to confirm a non-compete agreement is enforceable in your state. There are some states where they are not enforced at all (Oklahoma and North Dakota). Some states have restrictions on what can and cannot be included in non-compete agreements (California). Therefore, be sure to check your state laws to make sure the non-compete you intend to use will be enforceable. If you are unsure about a particular clause in the non-compete agreement, you may want to contact a lawyer to obtain proper legal advice.
Keep it Reasonable
The agreement should be reasonable in both duration and geographic scope. The scope is the geographic area where the employee or contractor is restricted from working from the company’s principal place of business. One of the main reasons a non-compete is found unenforceable is when the terms listed are wholly unreasonable. This would make the contract “unconscionable.” Unconscionable is a contract so unreasonable that it “shocks the conscious.” You should not place too many restrictions on the individual.
For example, restricting an individual from working in direct competition with your company for five years could be considered an unreasonable length of time. Most non-competes restrict an individual’s competition to a time period of 12 to 24 months. The non-compete should also be reasonable in scope. The agreement should not be overly burdensome to the employee or contractor. This simply means that a company should not restrict an employee or contractor’s ability to find work at the end of the working relationship.
Do your research. Make sure you include which industries are in direct competition with your company. You can also add a “non-solicitation” clause. This prohibits an individual from soliciting other employees or contractors at the end of the working relationship. It also prevents an individual from soliciting customers, or client lists, for a specific period of time during and after the working relationship.
Common Mistakes to Avoid
The goal is to keep your non-compete agreement reasonable and enforceable. However, here are a few common mistakes to avoid:
- List the proper parties to the agreement – as elementary as it may sound, you want to be sure you include the names, position with your company, and particular restrictions.
- Clearly list the dates after the working relationship that the individual is restricted from competing.
- Describe the restricted territory/scope that the individual is prohibited from working in after the working-relationship.
- Using a one-size-fits-all method – a non-compete that works for one industry may not work for another. Be sure to customize your non-compete agreement and list the industries that are in direct competition with yours.
- Including an excessive duration or scope that is unreasonable.
- Both the company and the individual need to sign the agreement.
- Not having a non-compete- a non-compete is a very valuable tool for a company. It protects your business interests, trade secrets, and other protected information.
How to Make a Non-Compete Your Own
Each non-compete may be different. This is mainly because of the position or role of the individual you are hiring. For example, if you hire a marketing coordinator and you wish to prevent the coordinator from competing in any similar industries performing the same type of work as they will in their role with your company. There are times when you have to tailor the non-compete agreement to fit the particular circumstances.
How do I get it signed?
Be sure to explain to your employee or contractor the reason you have a non-compete. Also, ensure they understand the terms of the agreement and invite any questions they may have. Having the agreement e-signed is quick and efficient. Online signatures of the parties to the agreement are legally binding. You can use ApproveMe.com to ensure you have a legally binding signature that is super-convenient and easy for both parties.
Resources for you and your Growing Business
While your busy growing your new company, we went ahead and put together a few helpful resources that you can checkout to help your business run smoothly. It is important to have a reliable and easy to use payroll system. Here are a few top payroll companies that cater to both small and large businesses:
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This Non-Compete Agreement (“Agreement”) is entered into by and between ________________________, with an address of, ____________________________ (“the Company”) and _______________________, with an address of, ______________________, (the “Individual”), collectively referred to as the “Parties”), as of ___________(the “Effective Date”).
Prohibited Activity. For purposes of this non-compete clause, “Prohibited Activity” is activity in which the Individual contributes the Individual’s knowledge, directly or indirectly, in whole or in part, as an employee, employer, owner, operator, manager, advisor, consultant, contractor, agent, partner, director, stockholder, officer, volunteer, intern, or any other similar capacity to an entity engaged in the same or similar business as the Company.
The Individual acknowledges that the Company’s primary business is ____________________________________________________________________________________________________________________________________________________________
The Individual shall be prohibited from competing with the Company in the Company’s primary business described above. Prohibited Activity also includes activity that may require or inevitably require disclosure of trade secrets, proprietary information, or Confidential Information.
Restricted Period. The Individual shall be prohibited from competing with the Company for a period of _______ (years/months) upon the termination of its relationship with the Company.
Restricted Territory. The Individual agrees and covenants not to engage in Prohibited Activity within a ______ mile radius from the Company’s primary business location at _________________________________________________.
Non-Solicitation. The Individual agrees and covenants not to directly or indirectly solicit, hire, recruit, or attempt to solicit, hire, or recruit, any employee of the Company. The Individual agrees not to solicit, either directly or indirectly, the business of any client and/or customer of the Company.
This non-solicitation provision explicitly covers all forms of oral, written, or electronic communication, including, but not limited to, communications by email, regular mail, express mail, telephone, fax, instant message, and social media, including, but not limited to, Facebook, LinkedIn, Instagram, Twitter, and any other social media platform, whether or not in existence at the time of entering into this Agreement.
Proprietary and Confidential Information. “Proprietary and Confidential Information” means any information of the Company that is not generally known to the public or to Company’s competitors in the industry, was not known by the Individual prior to signing this Agreement, is used in the business of the Company, and gives the Company an advantage over businesses that do not know the information. “Proprietary and Confidential Information” also means any information of one of the Company’s customers that is not generally known to the public or to the customer or the Company’s competitors in the industry, was not known by the Individual prior to signing this Agreement, is used in the business of the customer or the Company, and gives the customer or the Company an advantage over businesses that do not know the information. “Proprietary and Confidential Information” includes, but is not limited to: the identity of the Company’s customers and prospective customers; personal relationships with those customers; the Company’s customers’ preferences and tendencies; the Company’s purchasing, pricing, cost, and sales arrangements with customers and suppliers; the Company’s marketing techniques, business plans, and strategies; the Company’s customers’ financial information; the Company’s inventorying and shipping techniques; and the Company’s customer lists, sales reports, inventory reports, cost reports, and other proprietary information received from the Company. Because of the nature and sensitivity of this information, the Individual acknowledges that the Company has legitimate business and competitive interests and legal rights to require non-disclosure of the information and to require that it be used only for the Company’s benefit.
Acknowledgment. The Individual understands and acknowledges that the restrictions, prohibitions, and other provisions set-forth in this Agreement, including the Prohibited Activity, Restriction Period, and Restricted Territory, are fair, reasonable, and equitable in its scope, terms, and duration. Further, the individual acknowledges that this Agreement is necessary to protect the business interest or the like of the Company and are a significant inducement to the Company to enter into this Agreement.
Modification and Waiver. The failure of or delay by either Party in exercising any right, power, or privilege under this Agreement operate as a waiver to preclude any other or further exercise of any right, power, or privilege.
Attorneys’ Fees. If the Individual breaches any of the terms of the restrictive covenant obligations in this Agreement, to the extent authorized by state law, the Individual will be responsible for payment of all reasonable attorneys’ fees and costs the Company]= incurred in the course of enforcing the terms of the Agreement, including demonstrating the existence of a breach and any other contract enforcement efforts.
Legal and Binding Agreement. This Agreement is legal and binding between the Parties herein. The Parties each represent they have the authority and capacity to enter into this Agreement.
Governing Law and Jurisdiction. The Parties agree that this Agreement shall be governed by the State and/or Country in which the Company is located.
Severability. Should any provision of this Agreement be deemed enforceable or invalid, and thus stricken, that determination shall not affect the validity of the remainder of this Agreement, the balance of which shall continue to be binding on the Parties with any modification to become a part of and treated as though originally set forth in this Agreement.
Captions. Captions and headings of the sections and paragraphs of this Agreement are intended solely for convenience and no provision of this Agreement is to be construed by reference to the caption or heading of any section or paragraph.
Entire Agreement. Unless specifically provided herein, this Agreement contains all the understandings and representations between the Company and the Individual pertaining to the subject matter hereof and supersedes all prior and contemporaneous understandings, agreements, representations, and warranties, both written and oral, with respect to such subject matter.
Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument. Delivery of an executed counterpart’s signature page of this Agreement, by facsimile, electronic mail in portable document format (.pdf), or by any other electronic means intended to preserve the original graphic and pictorial appearance of a document, has the same effect as delivery of an executed original of this Agreement.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the Effective Date above.
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