Business litigation issues: what is non-compete agreement?

In today’s volatile business environment, starting a business and staying in business in Louisiana can be tough, and the last thing a business needs is to lose valuable trade secrets that have taken time and money to accrue and cultivate only to have others reap the rewards without any of the expense.

To that end a common tool used by employers to protect their carefully guarded trade secrets is what is commonly referred to as a non-compete agreement. A non-compete agreement is essentially a contract that an employee accepts and signs as a prerequisite for accepting a position with an employer.

Typically, non-compete agreements impose restrictions on the employee that govern how long the employee has to wait before he or she can accept a job offer from his or her former employer’s direct competitors. Non-compete agreements can also impose specific restrictions on what type of information an employee can divulge after his or her position with his or her employer is terminated, regardless of whether the termination was voluntary and amicable or not. Generally there is usually a time limit that is imposed and very rarely, if ever, are non-compete agreements drafted to be legally binding indefinitely.

This type of legal mechanism is sometimes necessary when a business cannot protect its trade secrets with patents. However, keep in mind that just because an employee agreed to sign a non-compete agreement doesn’t mean that it cannot be challenged in court later on.

The most important thing to keep in mind when drafting a non-compete agreement that will stand up to legal scrutiny if challenged in a court of law is to have a good, solid, rational reason for requiring the non-compete agreement in the first place. A valid example would be the need to guard and protect a trade secret.

Make no mistake, if a court deems that a non-compete agreement is too stringent or unnecessarily punitive towards the former employee, it may be stricken and overruled. To ensure that a non-compete agreement will hold up to legal scrutiny keep the language of the agreement brief and simple. Also do not include any details on an employer’s competitors. Since this post is for informational purposes only, an attorney experienced in business litigation may be able to provide residents of Baton Rouge with legal advice that is pertinent to their specific situations.

Source: U.S. Small Business Administration, “How; And When – to Use Non-Compete Agreements Appropriately,” JaimeD, June 2, 2010