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What makes for an enforceable noncompete contract?

On Behalf of | Feb 26, 2016 | Contract Disputes

Not every business has proprietary elements that make their operation stand apart from others. One McDonald’s in Louisiana is going to be pretty much the same as the next whether it is owned and operated by the corporation or by a franchisee.

It could be, however, that your business does enjoy some particular edge in a business segment due to some innovation you’ve developed in your operation or your products. As such, you have a right to protect those trade secrets. But that can be difficult to do in the current environment of hyper worker mobility.

Worker attrition tends to be high these days. Experts generally agree that the average U.S. worker lasts less than five years in any given job. As workers leave and take institutional knowledge with them it can erode of competitive edge. So what can you do? Well, if you decide to have employees sign a noncompete contract, be sure it’s enforceable.

Every state’s laws regarding noncompete agreements are likely to differ somewhat. But there are some general rules to follow if you hope to avoid having to take a matter to court. They include:

  • A solid business reason for the agreement.If you don’t have secrets to protect, an agreement could be seen as little more than a ploy to punish workers who choose to leave.
  • Something for the employee. Any contract requires an exchange of some value for both parties. In the case of a noncompete agreement, the worker could be said to be getting the job offer in exchange for protecting your secrets. If you want current employees to sign on to an agreement, though, you might have to offer a raise or some other benefit.
  • Reasonable terms. Reasonable is a loaded word. Like beauty, it can be in the eye of the beholder. In the case of a noncompete contract the expectation is that provisions will set a reasonable time for how long it will run, establish reasonable geographic boundaries limiting where the worker can seek new opportunities and be reasonable in the kinds of other companies the worker can go to.

Regardless of what side of the equation you may be on in a noncompete dispute, seek an attorney’s input to be sure of your rights.