Some employers ask employees to sign noncompete agreements in order to protect their trade secrets and confidential information. A noncompete agreement generally prohibits employees from going to work for a rival company. It also typically prohibits workers from starting their own businesses that will directly compete with their former employers.
A noncompete agreement restricts an employee's ability to earn a living. For this reason, some states (including California) don't enforce noncompete agreements, and many others enforce agreements only if they are reasonable in how long they last, how large an area they cover, and so on.
Who Should Be Covered by Noncompete Agreement?
If you decide to ask employees to sign noncompetes (and they are allowed in your state), you should ask only high-level employees to sign. Don't ask the cleaning crew, administrative staff, or customer service employees to sign a noncompete. Because these employees won't have access to your company's confidential information, a court could throw out the agreement -- or even find that your company acted illegally by trying to restrict these employees.
Instead, limit your requests for a noncompete agreement to employees who have access to your traade secrets, such as:
- employees who handle lists and contacts of clients, suppliers, distributors, and business partners
- employees engaged in product and research development
- inventors, designers, and other high-level creative employees
- employees engaged in designing and engineering (e.g., plant engineers, room engineers, and manufacturing engineers)
- key employees who have authority over the production and manufacture of machines, apparatus, and other related products, and
- employees engaged in creative work related to advertising, sales promotion, and broadcasting.
Limits on Noncompete Agreements
Because noncompete agreements infringe the rights of workers to seek employment opportunities, some states don't enforce them under any circumstances. If your company does business in such a state, you can take other steps to protect trade secrets. For example, you can ask employees to sign nondisclosure agreements, promising not to reveal the company's confidential information.
Even in states that allow noncompete agreements, a court may void the agreement unless it is reasonable in its terms and scope. A noncompete is more likely to be found reasonable if:
- the restriction does not last too long, and
- the contract covers a limited geographical area or a limited list of competing employers.
