Draft Robust but Fair Non-Competition Agreements

Note: Links to our free templates are at the bottom of this long guide.
Also note: This is not legal advice

Introduction

When it comes to protecting a business’s assets, few documents are as important as a non-compete agreement. These agreements can help safeguard confidential information, such as trade secrets, from being shared with competitors and ensure that former employees don’t use their knowledge of the company’s strategies, operations and products to benefit a rival business. But what makes for an effective and legally binding one?

Drafting a good non-compete agreement requires an understanding of why they’re needed in the first place. These agreements protect businesses’ sensitive information, trade secrets and customer relationships - without one in place, employees might be able to undermine or damage the organisation’s financial security or reputation. And so when it comes to writing these documents up, it’s essential to make sure that their contents are both reasonable and enforceable: the agreement should specify exactly what needs protecting rather than be overbroad; it should feature realistic geographic limitations; its duration should also be justifiable; also, for legal purposes there must be written evidence of its existence (it has to be signed by the employee) and this documentation must explain everything in simple terms.

Of course these parameters only scratch the surface - true confidence in any arrangement requires thorough legal review that takes into consideration national or local laws as well as any potential conflicts with other organisations or individuals. That’s where The Genie AI team come in: our open source legal template library covers millions of data points helping anyone craft high quality legal documents without having to pay for costly expert advice! We provide free non-competition agreement templates so you can learn how best to protect your interests - no account required! Our step-by-step guidance will have you navigating complex regulations like a pro - read on for more information about accessing our template library today!

Definitions

Non-Compete Agreement: A contract between an employer and employee that restricts the employee from engaging in certain activities, such as working for a competitor, after the termination of employment.

Applicable State Laws: Laws in a given state that are relevant to a particular agreement or situation.

Geographic Restrictions: Limitations on an employee’s ability to work or operate in certain areas.

Reasonable Level: An amount or level that is appropriate for a given situation.

Scope of Activities: The type of activities that are restricted by an agreement.

Circumstances: The conditions or particular events that dictate a decision or action.

Compensation: Money, benefits, or other forms of payment given to an employee in exchange for services.

Requirements: Specific conditions or criteria that must be met in order to complete a task or obtain a desired outcome.

Plain Language: Language that is clear and easy to understand, without the use of technical or legal jargon.

Contents

1. Identifying the type of non-compete agreement to be used
2. Researching the applicable state laws to determine the type of non-compete agreement allowed
3. Deciding on a reasonable level of restriction for the agreement
4. Establishing the geographical area and timeframe of the agreement
5. Deciding on a reasonable geographical area for the agreement
6. Determining a reasonable timeframe for the agreement
7. Defining the scope of activities that are restricted
8. Specifying which activities are restricted by the agreement
9. Restricting activities only to the extent necessary to protect the employer’s interests
10. Defining the circumstances under which the non-compete agreement is terminated
11. Establishing conditions under which the agreement will automatically terminate
12. Determining what happens if either party breaches the agreement
13. Determining the compensation to be paid to the employee for signing the agreement
14. Considering what type of compensation is appropriate for the employee
15. Deciding on an appropriate amount of compensation
16. Ensuring that the agreement meets the requirements of applicable laws
17. Researching state laws to determine the applicable requirements
18. Making sure that the agreement complies with the applicable laws
19. Drafting the agreement to be clear, concise, and understandable
20. Writing the agreement in plain language that is easily understood
21. Minimizing legal jargon and technical language
22. Reviewing the agreement from the perspective of the employee
23. Making sure that the agreement is fair to both parties
24. Considering whether the employee would be able to comply with the agreement
25. Implementing a system to monitor compliance with the agreement
26. Developing a process to ensure that the agreement is followed
27. Establishing a procedure for addressing any violations of the agreement
28. Providing legal advice about the agreement if needed
29. Researching local attorneys to assist with the agreement
30. Consulting with an attorney to ensure that the agreement is legally sound

Get started

Identifying the type of non-compete agreement to be used

• Understand the purpose of the non-compete agreement and the scope of activities it will cover
• Identify the type of non-compete agreement that is most appropriate based on the scope of activities and the jurisdiction in which it will be used
• Consider whether a non-solicitation agreement, a non-disclosure agreement, or a non-compete agreement is most appropriate
• Research any relevant case law in the jurisdiction to ensure that the agreement will be enforceable

You can check this off your list once you have identified the type of non-compete agreement that is most appropriate for the situation and have done your research to ensure the agreement is enforceable.

Researching the applicable state laws to determine the type of non-compete agreement allowed

• Research the laws in the applicable state(s) to determine the type of non-compete agreement that is allowable
• Consult with a lawyer or legal expert to ensure that you are up to date on the latest laws and regulations regarding non-compete agreements
• Make sure that the type of agreement you are drafting is in compliance with the applicable state laws
• When you have determined the type of non-compete agreement allowed in your state, you can check this off your list and move on to the next step.

Deciding on a reasonable level of restriction for the agreement

• Assess the purpose of the non-competition agreement and decide what level of restriction is necessary to protect your business
• Consider the interests of the employee, such as the ability to find other employment, and the impact the agreement may have on their career
• Balance the level of restriction with the interests of the employee to create a fair but robust agreement
• When you have determined what level of restriction is necessary for the agreement, you can check this off your list and move onto the next step.

Establishing the geographical area and timeframe of the agreement

• Determine the geographical area and the timeframe for which the agreement will apply.
• Consider the local regulations and laws, as well as the relevant geographic boundaries, when making the decision.
• Make sure that any agreements are reasonable and do not prevent the employee from conducting their normal activities.
• Clarify if the agreement applies to the entire country, a specific region, or a particular city and state.
• Consider the duration of the agreement and whether it is limited to a certain period or is ongoing.
• Set out the geographical area and timeframe of the agreement in the document.

How you’ll know when you can check this off your list and move on to the next step:

• Once you have determined the geographical area and the timeframe for which the agreement will apply, and have clarified this in the document, you can move on to the next step.

Deciding on a reasonable geographical area for the agreement

• Consider the scope of the business and the nature of the agreement - what geographical area makes sense for the agreement?
• Talk to legal counsel to determine the exact geographical area to include in the agreement.
• Consider the scope of the business and the nature of the agreement - what geographical area makes sense for the agreement?
• Make sure this geographical area is reasonable and fair to all parties involved.
• Make sure the geographical area is clearly defined in the agreement.
• Once you have determined the geographical area and it has been agreed upon, you can check this step off your list and move on to determining a reasonable timeframe for the agreement.

Determining a reasonable timeframe for the agreement

• Identify the time period for which you will be seeking to prevent competition in the agreement.
• Consider the needs of both parties to the agreement and ensure that the timeframe is reasonable and fair.
• Make sure to include a start and end date for the agreement.
• Consider whether or not you need to include a provision for renewing the agreement for a new specified time period.
• Once you have determined the timeframe for the agreement, you will know when you can check this off your list and move on to the next step.

Defining the scope of activities that are restricted

• Identify the type of activities that may cause harm to your business if the former employee engages in them
• Consider whether there are any activities related to the former employee’s role that should be included in the agreement
• Outline the activities that are to be restricted by the agreement, such as soliciting customers, clients, or business partners
• Determine any geographic limitations that should be included in the agreement, such as restricting the former employee from competing within a certain radius of your business
• Review the agreement to ensure that all activities that are to be restricted are included

When you can check this off your list:

• When all activities that are to be restricted have been identified and outlined in the agreement
• When any applicable geographic limitations have been specified in the agreement

Specifying which activities are restricted by the agreement

• Identify which activities would be in competition with the employer’s business.
• Describe the activities, business interests, and geographic locations that are subject to the non-competition agreement.
• Draft language to include in the non-competition agreement that clearly outlines which activities are prohibited.
• Seek legal counsel to review the language in the non-competition agreement, ensuring that it is legally binding and compliant with applicable laws.

Once you have completed the steps above and have a legally binding non-competition agreement that specifies which activities are restricted, you can check this step off your list and move on to the next step.

Restricting activities only to the extent necessary to protect the employer’s interests

• Assess what activities/behaviors you want to restrict as an employer in order to protect your business interests
• Draft a list of activities that directly relate to the business’ interests, and that should be restricted
• Make sure the list of activities is specific and clear, and that it includes the full scope of activities to be restricted
• Ensure that the restrictions are tailored to the specific activities that the employee was involved in with the business
• Confirm that the restrictions do not go beyond what is necessary to protect the employer’s interests
• Revisit the list of activities and make changes if needed

How you’ll know when you can check this off your list and move on to the next step:
Once you have assessed the activities you want to restrict, drafted a list of activities, and made sure the list is specific and clear, tailored to the specific activities of the employee, and does not go beyond what is necessary to protect the employer’s interests, you can feel confident that you have completed this step and can move on to the next step.

Defining the circumstances under which the non-compete agreement is terminated

• Ensure that the agreement states when the agreement can be terminated
• Specify the circumstances under which the agreement can be terminated, such as:
• Termination of employment
• Termination of the agreement by either party
• Expiration of the agreement
• Specify any additional conditions or triggers that will result in termination of the agreement
• Make sure the agreement includes a clear expiration date
• When all of the above conditions are fulfilled, you can move on to the next step of establishing conditions under which the agreement will automatically terminate.

Establishing conditions under which the agreement will automatically terminate

• Establish specific conditions or events under which the agreement will automatically terminate
• Identify the exact language in the agreement that will signify the termination of the agreement
• Consider the duration of the agreement and include any relevant date or time parameters
• Spell out the exact conditions and consequences of termination
• Once you’ve laid out the conditions and consequences of when the agreement will terminate, you’ll be ready to move on to the next step
• Once you’ve completed this step, you can check it off your list and move on to the next step of determining what happens if either party breaches the agreement

Determining what happens if either party breaches the agreement

• Identify the consequences of a breach of the agreement by either party
• Discuss the remedies available to the non-breaching party
• Consider whether the non-breaching party should have the right to seek injunctive relief
• Agree on the procedures for dispute resolution
• Specify the time frame for filing a claim or initiating legal action
• Discuss the penalties for breaching the agreement

When you have finalized the agreement on what happens if either party breaches the agreement, you can check this off your list and move on to the next step of determining the compensation to be paid to the employee for signing the agreement.

Determining the compensation to be paid to the employee for signing the agreement

• Consider the value of the agreement, the employee’s role, and their experience and qualifications
• Take into account the industry standard for compensation for non-compete agreements
• Determine how much compensation will be paid to the employee for signing the agreement
• Create a plan for payments that is reasonable and fair
• Document the compensation in writing
• Once the compensation has been determined and documented, you can move on to the next step of considering what type of compensation is appropriate for the employee.

Considering what type of compensation is appropriate for the employee

• Consider the type of payment that is best suited for the employee, such as a one-time bonus, a deferred payment, or a severance package.
• Discuss the details of the payment with the employee to ensure that the agreement is fair and meets their needs.
• Make sure the payment is in accordance with any relevant laws or regulations.
• Consider the preferences of the employee when negotiating the payment.

When you’ve considered all of the above points, you can check off this step and move on to the next one.

Deciding on an appropriate amount of compensation

• Carefully review the employee’s role in the company and consider their salary history to determine the appropriate amount of compensation
• Consider what other types of compensation, such as a bonus or stock options, may also be appropriate
• Discuss the details with the employee and/or their legal counsel
• Reach an agreement on the amount of compensation that is fair and just
• Make sure that the terms of the agreement are clearly stated and documented in writing
• When the agreement is finalized, the employee and the company should both sign it

How you’ll know when you can check this off your list and move on to the next step:
Once both parties have agreed on the amount of compensation and signed the agreement, you can move on to the next step of ensuring that the agreement meets the requirements of applicable laws.

Ensuring that the agreement meets the requirements of applicable laws

• Research the applicable laws in your jurisdiction that govern non-competition agreements
• Make sure that the agreement does not violate any of the applicable laws
• Ensure that the agreement does not impose any unfair or unreasonable restrictions on the parties
• Make sure that all of the necessary clauses are included in the agreement
• Make sure that the agreement does not have any gaps or inconsistencies
• Once you are sure that the agreement complies with the applicable laws, you can check this off your list and move on to the next step.

Researching state laws to determine the applicable requirements

• Identify the state(s) where the agreement will be enforced
• Research the state’s laws governing non-compete agreements
• Understand the requirements of the state, such as how long a non-compete agreement can last and what activities are restricted
• Educate yourself on the relevant case law, if any
• Make a list of the requirements that the agreement must meet for it to be valid

You will know that you have completed this step when you have a thorough understanding of the state’s requirements for non-compete agreements, and you have made a list of requirements that the agreement must meet.

Making sure that the agreement complies with the applicable laws

• Review relevant state and federal laws to ensure the agreement is compliant
• Make sure the agreement does not violate any public policy or any other applicable laws
• Pay special attention to applicable competition laws and any restrictions that may affect the agreement
• When done, make sure to have a lawyer review the agreement and confirm its legality
• Once the lawyer has reviewed and approved the agreement, you can move on to the next step of drafting the agreement.

Drafting the agreement to be clear, concise, and understandable

• Make sure the agreement is written in plain language and is easy to understand
• Avoid overly technical legal language
• Discuss the agreement with the other party and make sure both parties understand what has been agreed upon
• Use short sentences and simple words when possible
• Be careful to use gender-neutral language
• Check for typos and any other errors that may undermine the clarity of the agreement
• Once both parties have agreed and signed the agreement, it is time to move on to the next step.

Writing the agreement in plain language that is easily understood

• Rewrite the agreement in clear and concise language
• Use active voice throughout the agreement
• Avoid unnecessary legal jargon
• Use everyday language wherever possible
• Explain the terms of the agreement in easy to understand language
• When complete, make sure the agreement is easy to read and understand
• Once you are certain that the agreement is written in plain language that is easily understood, you can move on to the next step.

Minimizing legal jargon and technical language

• Read through the agreement and make a list of any legal jargon, technical language, and/or phrases that are overly complicated and difficult to understand
• Replace these words and phrases with plain language that is easily understood by the average person
• Visit a legal website to get clarification on any terms that you are unsure of
• Have someone who is not familiar with the agreement read it and provide feedback on how easy it is to understand
• Once you are satisfied that the agreement is written in plain language, you can move on to the next step in the process: reviewing the agreement from the perspective of the employee

Reviewing the agreement from the perspective of the employee

• Read over the agreement from the employee’s point of view and consider whether the language used is clear and understandable
• Make sure that the employee is aware of the implications of the non-compete agreement
• Ensure that the terms of the agreement are fair and equitable for both parties
• Make sure that the agreement does not unfairly limit the employee’s future employment opportunities
• Check that the agreement does not contain any ambiguities or loopholes
• Confirm that the agreement includes a “material breach” clause
• Make sure that the agreement contains a “severability” clause

When you can check this off your list and move on to the next step:

• When the agreement has been reviewed and revised to ensure that it is clear, equitable and fair to both parties.

Making sure that the agreement is fair to both parties

• Review the agreement to ensure that both parties are equally protected and that no party is taking more than their fair share of the risk
• Ensure that the agreement is clear and understandable to both parties and that any language used is not confusing or open to interpretation
• Consider the bargaining power of both parties and whether the agreement puts one party at a disadvantage
• Consider the potential impact of the agreement on the employee’s ability to earn a living and to find other employment
• Check that the agreement does not restrict the employee’s ability to develop their skills, knowledge and experience
• Make sure that the agreement does not force the employee to work exclusively for the employer
• Consider whether the agreement is proportionate to the employee’s role and responsibilities

How you’ll know when you can check this off your list and move on to the next step:
Once you have reviewed the agreement to ensure it is fair and that both parties are equally protected, you can move on to the next step.

Considering whether the employee would be able to comply with the agreement

• Assess the employee’s current position and their ability to adhere to the non-competition agreement
• Analyze the employee’s job responsibilities, job duties, and the scope of the non-competition agreement
• Evaluate the financial impact of the non-competition agreement on the employee
• Determine whether the non-competition agreement is reasonable in light of the employee’s current situation
• Ensure that the employee understands the terms and conditions of the non-competition agreement

When you have finished this step, you will have a clear understanding of whether the employee can comply with the agreement.

Implementing a system to monitor compliance with the agreement

• Create a system to monitor compliance with the agreement, such as an online database or a spreadsheet.
• Ensure that the system is able to track employee compliance with the agreement, as well as any violations.
• Develop a process to review the system on a regular basis, such as weekly or monthly.
• Establish a protocol for dealing with any violations that are discovered.
• Make sure employees are aware of the system and the protocols in place.
• When the system has been set up and the protocols have been established, you’ll know you can check this off your list and move on to the next step.

Developing a process to ensure that the agreement is followed

• Create a plan for how the agreement will be enforced, including who will be responsible for monitoring compliance
• Develop a system of communication to inform parties of their obligations under the agreement
• Establish a process to document any potential or actual violations to the agreement
• Create a timeline for when agreement compliance will be evaluated and reviewed
• When complete, document the developed process and provide a copy to all parties involved
• When all steps have been completed, review the plan to ensure it is effective and fair.

Once these steps are complete, you can move on to establishing a procedure for addressing any violations of the agreement.

Establishing a procedure for addressing any violations of the agreement

• Determine the appropriate action to take in the event of a violation.
• Create a system for documenting and tracking violations.
• Keep records of all violations and the actions taken in response.
• Communicate the procedure to all parties involved in the agreement.
• Make sure the procedure is fair and consistent.

Once all of the above steps have been completed, you can check this off your list and move on to the next step.

Providing legal advice about the agreement if needed

• Research local attorneys who specialize in contract law and non-compete agreements
• Ask colleagues or professional organizations for referrals
• Contact potential attorneys to discuss the agreement, their experience, and how they can help
• Book a consultation to ensure the attorney is a good fit for the job
• Once the attorney is chosen, discuss the agreement in detail and provide any necessary documents
• Receive legal advice and make any necessary amendments to the agreement
• Once the agreement is finalized and approved by the attorney, you can check this step off your list and move on to researching local attorneys to assist with the agreement.

Researching local attorneys to assist with the agreement

• Research local attorneys who specialize in non-competition agreements
• Look for attorneys with positive online reviews
• Check for any professional affiliations, such as with the American Bar Association
• Ask for referrals from colleagues or friends
• When you have a list of attorneys to choose from, arrange an initial consultation to discuss their experience
• Once you’ve identified a local attorney that is a good fit for your needs, you can check off this step and move on to consulting with them to ensure the agreement is legally sound.

Consulting with an attorney to ensure that the agreement is legally sound

• Contact the attorney you’ve researched and explain the situation and what you need
• Make sure the attorney has the necessary experience for drafting non-competition agreements
• Ask for a detailed quote and timeline for the completion of the agreement
• When the attorney is ready, provide them with the relevant details to draft the agreement
• Review the draft of the agreement and make any necessary changes
• Check that the agreement adheres to the legal requirements of your state
• Sign the agreement and have the other parties involved sign it
• You can check this step off your list and move on to the next step once the agreement is completed, all parties have signed it, and it adheres to the legal requirements of your state.

FAQ

Q: What are the differences between US and UK non-compete laws?

Asked by David on April 27, 2022.
A: Non-competition laws vary between the US, UK and other EU countries. Generally speaking, UK non-compete agreements are not enforceable unless they are necessary to protect the employer’s legitimate business interests or are reasonable in scope. In the US, state law governs non-compete agreements, and states vary significantly in their approach to these agreements. For instance, California generally does not support non-compete agreements, while states such as Massachusetts have more employer-friendly laws. Additionally, some US states have adopted a “red pencil” rule which requires courts to modify overly broad non-compete clauses in order to make them enforceable.

Q: What should I consider when drafting a non-competition agreement?

Asked by Sarah on May 11, 2022.
A: When drafting a non-competition agreement, it is important to consider the scope of the agreement carefully. The agreement should be tailored to the particular needs of the business and should not include overly broad restrictions. Additionally, it is important to consider what activities are prohibited by the agreement as well as any exceptions that might be applicable (such as for certain types of employees). Additionally, it is important to consider whether any other laws or regulations may be applicable and whether any of those should be included in the agreement. Finally, employers should also consider how long the agreement should last and what remedies may be available if an employee breaches the agreement.

Q: What is a reasonable scope for a non-competition agreement?

Asked by Stephen on June 21, 2022.
A: A reasonable scope for a non-competition agreement will depend on factors such as the type of business involved, the industry, and the geographical area covered by the agreement. Generally speaking, courts have been more likely to enforce agreements that have a limited geographical scope (such as a specific region or city) and that limit activities to those that are directly related to the employer’s business. Additionally, courts have been more likely to enforce agreements that are limited in duration (e.g., one or two years). Finally, when considering what activities should be prohibited by the agreement, employers should focus on activities that would directly compete with their business interests (e.g., working for a competing company).

Q: How long should a non-competition agreement last?

Asked by John on July 10, 2022.
A: The length of a non-competition agreement will depend on factors such as the type of business involved, the industry and the geographical area covered by the agreement. Generally speaking, courts have been more likely to enforce agreements that are limited in duration (e.g., one or two years). However, some jurisdictions may allow longer periods depending on the circumstances. It is important to note that courts may also modify overly long agreements so that they are reasonable and enforceable.

Q: Are non-compete agreements enforceable in all countries?

Asked by Elizabeth on August 4, 2022.
A: Non-compete agreements are generally governed by local laws and regulations and enforcement can vary significantly between countries. In some countries (such as the UK), non-compete agreements may not be enforceable unless they are necessary to protect an employer’s legitimate business interests or are reasonable in scope. Other jurisdictions may have more employer-friendly laws (such as some states in the US) or may allow longer periods for enforcement (depending on circumstances). It is important to note that there may also be other laws or regulations applicable in specific countries which employers should consider when drafting a non-compete agreement.

Q: How do I make sure my non-compete agreement is enforceable?

Asked by Michael on September 15, 2022.
A: To ensure your non-compete agreement is enforceable it is important to carefully consider its scope and duration before drafting it. The agreement should be tailored to your particular needs and should not include overly broad restrictions which could limit an employee’s ability to find future employment after leaving your company. Additionally, you should consider what activities you want prohibited by the agreement as well as any exceptions that might apply (such as for certain types of employees). Finally you should ensure you comply with any applicable local laws or regulations when crafting your agreement.

Example dispute

Lawsuits Involving Non-Competition Agreements

• A plaintiff may raise a lawsuit referencing a non-competition agreement if they believe their former employer has violated the agreement in some way.
• For instance, the plaintiff may claim that their former employer has hired a competitor in violation of the agreement, or that they have hired an employee who is bound by the same non-competition agreement.
• The plaintiff must have evidence to support their claims, such as emails, documents, or testimonies of witnesses.
• The plaintiff may seek to settle the case out of court, or they may pursue legal action, seeking damages for any losses incurred as a result of the alleged breach of the non-competition agreement.
• Damages may include lost wages, lost benefits, or other economic losses.
• In some cases, the plaintiff may be able to recover punitive damages if they can prove that their former employer acted in bad faith or with malicious intent.

Templates available (free to use)

Client Questionnaire Hiring An Employee With Non Compete
Employee Non Compete Contract
Employee Non Compete Contract Colorado
Employee Non Compete Contract Florida
Employee Non Compete Contract Georgia
Employee Non Compete Contract Illinois
Employee Non Compete Contract Indiana
Employee Non Compete Contract Massachusetts
Employee Non Compete Contract Michigan
Employee Non Compete Contract Minnesota
Employee Non Compete Contract Missouri
Employee Non Compete Contract New Jersey
Employee Non Compete Contract North Carolina
Employee Non Compete Contract Ohio
Employee Non Compete Contract Pennsylvania
Employee Non Compete Contract Tennessee
Employee Non Compete Contract Texas
Employee Non Compete Contract Virginia
Employee Non Compete Contract Washington
Employee Non Compete Contract Wisconsin
Standard Restrictive Covenants For Commercial Contracts Including Non Compete Non Solicitation No Poaching
Waiver Release Of Non Compete Obligations

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