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The Pros And Cons Of Having A Non-Compete Agreement

As an employer and business owner, it’s vital to safeguard your competitive edge in today’s highly cutthroat marketplace by ensuring employees sign a non-compete agreement. Only by doing this is your business guaranteed success. After all, you’ll be better placed to protect a company’s trade secrets, customer relationships, and sometimes its proprietary technologies.

Therefore, creating a non-compete agreement will undoubtedly help protect your business if an employee leaves to work for a competitor. This also applies if a former employee decides to start their own competing business. If you’re still unsure whether your employees should sign a non-compete agreement, here’s a guide detailing the pros and cons you should expect.

What’s a Non-compete Agreement?

A non-compete agreement is a written contract between an employer and employee or a business owner and contractor. The primary goal of this contract is to prevent either party from competing with the other for a certain amount of time after their relationship ends. This gives the parties involved the guarantee that product details, company secrets, and methods don’t leak to competitors to safeguard the firm.

The non-compete agreement typically covers certain details, and these include;

  • What’s considered working for a direct business rival
  • The employees who will be subject to the agreement
  • The geographic area, be it region, state, or nation within which the non-compete agreement is binding
  • The specific businesses that cannot be converted into competitors, and
  • The length of time during which these terms will apply.

The use of non-compete contracts is quite common, with a reported one out five employees obliged to adhere to this agreement. But are non-competes enforceable in Florida? It’s crucial that you first find out before getting your employees to sign one because some states don’t permit the use of non-compete agreements.

What Are the Pros of Having a Non-compete Agreement?

The use of a non-compete agreement is linked to a couple of positives, and these include;

1. Protection Against Competition for Employers and Business Owners

As an employer or business owner, one way of protecting yourself from competition from former employees is by requiring them to sign non-compete agreements. This is critical, especially if these former employees had access to sensitive information or trade secrets that might be used for personal benefit or to compete against you.

Luckily, the non-compete agreement prevents this from happening. This gives you peace of mind knowing that your former employees won’t disclose or use any confidential information against you. In addition, the agreement also prohibits an employee from leaving your company and taking clients with them. This means you can be confident that your clients stay with you even when your employees leave.

2. Safeguard Trade Secrets and Other Details

Another advantage of the non-compete agreement is that it helps in safeguarding sensitive company information such as trade secrets. As a business owner, putting measures to safeguard this confidential information is necessary considering you may have spent a lot of time, money, and effort developing them. And because your competitor might want access to such information to gain a competitive edge over you, it’s best to put preventive measures to avoid this.

3. Improves Employee Retention

Customers see higher employee retention as a sign of a stable business because it promotes enhanced continuity, thereby leading to improved satisfaction. This is another reason to get your employees to sign the non-compete agreement. Doing this will help ward off any interest from other competing employers.

4. Prevent Unfair Competition

Some business owners are known for devious practices of soliciting their previous clients even after selling their company. This can easily be achieved because such individuals have information about the company’s customer data. As a result, they can develop marketing strategies directly targeting these client bases. This, in the long run, means that these greedy individuals earn a profit after selling their business and consequently starting a similar business and poaching their previous clients.

Fortunately, you can safeguard yourself from becoming a victim of such deceitful practices by ensuring the business owner signs a non-compete agreement after selling their company. The agreement prohibits the seller from starting a rival company within a particular time frame or distance after the sale. Therefore, the previous business owners won’t act in bad faith, which safeguards your business from suffering from unfair competition.

What Are the Cons of the Non-compete Agreement?

The non-compete agreement is also associated with a couple of downsides:

1. It’s Expensive to Enforce

Besides being energy and time-consuming, enforcing non-compete agreements is very costly. After all, solving such a case typically means a substantial sum of money is spent on court battles or the arbitration process with high legal fees. What’s worse is resolving a non-compete issue takes long and might not result in a win, meaning the court or arbitration process might end up being futile.

2. Non-compete Agreements Are Limited in Geographic Scope and Time

The enforceability of the non-compete agreement differs from one state to another. For example, Florida permits the enforcement of the non-compete agreement, but the same doesn’t apply in California. Therefore, attempts to implement this agreement differs depending on your geographical location.

The term scope that the non-compete agreement should be binding is also open for debate. A non-compete agreement that remains enforceable for a period of between six to two years is deemed unreasonable and opens up the likelihood of a lawsuit.

3. Boosts Your Competitor’s Image

Including a non-compete agreement might fend off the appeal of interested contractors or potential employees from working in your company. This is because some people feel that the non-compete agreement is too restrictive. As a result, these individuals who, many a time, are the top talent in the industry. Instead, these high performers prefer to work with your competitors due to the greater flexibility they enjoy.

Takeaway

Before entering into a non-compete agreement, it’s prudent first to assess the advantages and disadvantages of this type of contract. It’s only by doing this that you’ll be in a position to know whether this contract is beneficial to your company. And if you want further clarification about the value of the non-compete agreement, this insightful article has detailed the pros and cons you need to know. With this in mind, you’ll be able to tell whether this kind of contract is worth having.

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