Similar to non-disclosure agreements, non-compete agreements are commonly used contracts in the world of business. Such agreements usually come at the beginning of an employee/employer relationship when the two parties are engaged in negotiations for the employee to come work for the employer.
To help you better understand these types of agreements, this article will give a brief overview of what these agreements are, their elements, what they mean for employees and employers, their enforceability, and some best practices.
What is a non-compete agreement?
A non-compete agreement (NCA), also known as a non-compete clause, is a contract between two parties where one party agrees not to compete in the same field as the other party.
Such agreements are usually between an employee and an employer, where the employee is prevented from leaving the company to compete with their employer (i.e. starting their own business in the same field or moving to a similar company to work for them) for a certain period of time within a geographical region.
What are the elements of a non-compete agreement?
NCAs must contain at least the following three elements for them to be enforceable: geographical region, time period, and scope of activity.
Geographical region: The NCA must specific in which geographical region the employee cannot compete in. This area could be a small area surrounding the employer, an entire state, or even multiple states.
Time period: An NCA which requires an extended period of time is not enforceable as it will unduly limit the employee’s ability to work. Therefore, the time period requirement must be limited in nature.
In Georgia, if the court finds that the agreement violates time period limitations, it can “blue pencil” it, which means it can void the entire agreement.
Scope of Activity: Restrictions around what activities an employee cannot engage in must be limited to the area of expertise that falls within the employer’s field of business. As such, any NCA must be narrowly defined and specific to the employer’s field.
What does a non-compete agreement mean for an employee?
Employees should be careful to read exactly what an NCA restricts them from doing, as an NCA can restrict their ability to establish their own business, work for a competitor, or use their knowledge for the benefit of a new employer in the same field as their current employer.
Breaching an NCA is very serious and can have severe consequences. For example, underneath Georgia law, an employer is allowed to not only sure for breach of contract, but for lost revenue as well.
What does a non-compete agreement mean for an employer?
For an employer, especially start-ups or mid-size companies, an NCA is a critical document in protecting their trade secrets and business.
Employers must deal with the dilemma of investing time, money, and resources into an employee who may one day leave to work for another company.
An NCA allows employers a little breathing room to keep their knowledge, expertise, and resources within their company so they can capitalize on their investment.
Are non-compete agreements enforceable?
In short, yes. Courts will not hesitate to enforce an NCA if it is reasonable and within the law.
That means that if an employee breaches the NCA, an employer has the right to bring a lawsuit against them.
Courts will consider a variety of public policy factors to determine if and to what extent to enforce the NCA. Some of those factors include the need to work, survive, support a family, the maintenance of a free economy, and the spirit of entrepreneurship.
What are some best practices?
Best practice for negotiating an NCA is to do so at the outset of any employee/employer relationship. All parties should negotiation until they are both comfortable with what is included in the NCA.
Finally, it is always a best practice to never sign a document or contract until you have completely read it and are comfortable.
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Disclaimer: Nothing in relation to the enclosed information should be construed and or considered as legal advice for any individual, entity, case, or situation. The following information is prepared for advertisement use only. The information is intended ONLY to be general and should not be relied upon for any specific situation. For legal advice on your specific situation, we encourage you to consult an attorney experienced in the area of Immigration Law.