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A Closer Look at the Non-Compete Agreement

If you are a business owner, business leader, or employee, you’ve probably heard of (or have even used) a non-compete agreement. Non-competes work to protect yourself and your company from having trade secrets exposed, intellectual property stolen, or proprietary information shared or leaked. These contracts help employers safeguard their company’s information so that business can progress without the threat of competitors knowing more than they should.

Let’s take a closer look at non-compete agreements to understand what they are, why they are important, and what can happen if one is violated.

What Is a Non-Compete Agreement?

A non-compete agreement is a binding contract between an employer and an employee that is usually signed at the start of the employee/employer relationship. These agreements allow the employer to dictate, to some degree, the employee’s actions when it comes to interacting with competitors, both during the working relationship and for a period of time after the relationship has ended. Whether the employee resigns or is fired from their position, the non-compete agreement prevents them from specific actions or interactions with the employer’s competitors.

Usually, a non-compete agreement keeps employees from taking a job for a competing employer. The clauses within the agreement may specify that the employee cannot work with a competitor:

  • For a defined period of time
  • Within a defined geographical region
  • Within a defined market

They can also prevent employees from using what they learned from their employer to start their own competing company.

What Do Non-Compete Agreements Include

While each non-compete agreement looks different and is customized to the employer’s needs, the typical agreement includes some standard or common elements, such as:

Agreement Duration

Every non-compete agreement should state how long it will last. Often, the duration is for a few months or up to a year. Sometimes, the agreement can remain in effect for two years before it expires. However, agreements that specify a duration longer than two years are typically seen as unreasonable, and judges tend to disregard them. Agreements that specify an indefinite duration are immediately disregarded as they are not legally binding.

Too long a duration can directly hinder the employee’s chances of finding another position in their industry or field of expertise. Judges will evaluate the fairness of the duration should a lawsuit arise.

Geographic Areas

It’s possible to create or encounter an agreement that prevents an employee from looking for a job in the employer’s service area or a defined geographic location. The duration of the agreement affects how long this prohibition will last.

Competitors

The agreement needs to define the competitors, industries, and types of businesses that the employee is not allowed to work with while the agreement is in effect.

Scope of What the Employee Cannot Do

It’s important for the non-compete agreement to clearly state what it is the employee cannot do while the non-compete is active. From sharing company-specific information or techniques to performing company-specific tasks, procedures, or practices, the agreement needs to detail the scope of what is prohibited.

Violation Damages

The agreement should specify what the damages will be should the employee violate the non-compete.

Why Are Non-Compete Agreements Important?

Non-compete agreements are a crucial part of safeguarding a business from losing its advantage or its edge in the market. Without protection around the business’s practices, procedures, trade secrets, intellectual property, or proprietary information, current or former employees could take important details, info, or secrets to competitors, allowing competitors to use the information to gain advantages over the business. In some cases, unprotected businesses have been pushed out of their market or industry after their competitors gained enough internal information to use against them. To avoid similar downfalls, many companies make the non-compete a must-have when hiring new employees.

What happens When a Non-Compete Agreement is Violated?

In Georgia, competition-restrictive contracts like a non-compete agreement are governed by the Restrictive Covenants Act. This act clarifies that non-competes are enforceable so long as the agreement clearly defines the duration, geographical restrictions, competitors, scope of the agreement, and the damages owed should there be a violation. If there is a lack of clarity or the terms of the agreement are unreasonable, the agreement could be disregarded.

If an employee does breach a non-compete agreement, the employer has grounds to bring a lawsuit against the employee. Should the employer win the lawsuit, the employee may be ordered to:

  • Pay the employer any profits gained following the violation
  • Pay the employer monetary damages
  • Cover the employer’s legal fees
  • No longer work with their new employer

Has an employee or former employee violated a non-compete agreement that has led to losses for your business? The business litigation lawyers at Clark, Smith & Sizemore will fight for you.

If you are experiencing the consequences of an employee’s violation of your non-compete agreement,

talk to the team at Clark, Smith & Sizemore. We are well-versed in the laws surrounding business litigation and contract disputes and will fiercely represent you in your journey to resolution. Call us today for a free consultation: 478-254-5040.

Thanks for checking out part 3 in our 6-part series about business litigation. Stay tuned for all articles, which include: