Drafting a employee-friendly Noncompete Agreement

Note: Want to skip the guide and go straight to the free templates? No problem - scroll to the bottom.
Also note: This is not legal advice.

Introduction

The concept of non-compete agreements has become increasingly relevant in the business world. These agreements act as a contract between an employer and employee to restrict them from working for a competitor, starting a competing business or sharing confidential company information with third parties. It is essential to have one in place when it comes to protecting the employer’s interests.

Non-compete agreements are key in helping employers maintain their competitive advantage in the marketplace, allowing them to prevent their staff from utilising their knowledge and experience elsewhere, safeguarding what is proprietary and confidential. Alongside this, non-competes also protect employers’ investments in training and development as well as customer relationships as they stop employees from obtaining an unfair advantage by taking advantage of any property pertaining to their former employer.

It’s important that all non-compete agreements drafted are tailored fairly and reasonably for both parties involved - this means considering the geographical scope of the agreement, overall length and any other special terms due consideration must be given too. There are certain laws concerning such matters that companies need to adhere to depending on where they’re located so these must be taken into account when drawing up a deal that meets everyone’s needs.

To conclude, it’s clear that having a legally binding non-compete agreement is hugely beneficial for both employers and employees alike providing tangible protection for company assets including confidential information and trade secrets as well as ensuring recruitment policies remain intact offering peace of mind all round - if you’d like more guidance on how best to draft an employee friendly non compete agreement then read on below for our step by step guide or access our free template library today!

Definitions (feel free to skip)

Rights and Obligations: Rights are something you are allowed to do, like having a job and receiving fair compensation. Obligations are something you are required or expected to do, like keeping confidential information confidential.

Duration: The length of time for which the agreement is in effect.

Geographical Area: The specific location or region that the agreement applies to.

Duties: Responsibilities that are expected of the employee.

Working Hours: The hours of the day that the employee is expected to work.

Benefits: Additional rewards or advantages that the employee may be eligible to receive during their employment.

Compensation: The money or other benefits that the employee will receive in exchange for their work.

Enforcement Process: The steps that will be taken if one party violates the agreement.

Resolving Disputes: The process for settling disagreements between parties.

Enforceability: The ability of the agreement to be legally binding.

Language: The words used in the agreement.

Contents

• Define the scope of the agreement
• Identify the rights and obligations of each party
• Describe the purpose of the agreement
• Discuss the duration of the agreement
• Determine the start date
• Establish the end date
• Identify the geographical area the agreement covers
• Consider the employee’s current and future job roles
• Specify the duties of the employee
• Describe the employee’s working hours
• Outline the employee’s eligibility for benefits
• Determine the financial compensation the employee will receive
• Decide on the type of compensation (salary, commission, etc.)
• Specify the amount of compensation
• Decide on the enforcement process
• Outline the consequences for violating the agreement
• State the process for resolving disputes
• Consider the enforceability of the agreement
• Follow all state and federal laws
• Comply with all applicable regulations
• Determine the language of the agreement
• Select a language both parties understand
• Include language that is unambiguous and clear
• Review the agreement with an attorney
• Ensure the agreement is legally binding
• Make any necessary revisions
• Have the employee sign the agreement
• Provide two copies of the document to the employee
• Have the employee sign both copies
• Retain one copy for the employer’s records

Get started

Define the scope of the agreement

• Outline the geographic area and duration of the agreement
• Specify what activities the agreement covers
• Note any exclusions from the agreement
• Clarify the scope of the agreement in clear and simple language
• Include a definition of terms used in the agreement
• When you are satisfied with the scope, check it off your list and move on to the next step.

Identify the rights and obligations of each party

• Gather relevant information from both parties: what each party expects to receive, give, and do to comply with the agreement
• Consider the limits of the noncompete agreement, such as geographic area, duration, and scope of activities it covers
• Identify the rights and obligations of each party to ensure the agreement is fair and equitable
• Draft the agreement accordingly and make sure to include the specifics of the rights and obligations of both parties
• Have both parties review and sign the agreement to make it legally binding
• When both parties have signed the agreement, it is officially complete and ready to be enforced
• Ensure that both parties have copies of the signed agreement for their own records.

Describe the purpose of the agreement

• Clarify why the agreement is necessary and what it covers
• Include a statement of purpose for the agreement, such as to protect the employer’s confidential information
• Outline the rights and responsibilities of each party in regards to the agreement
• Include any limitations on the agreement
• Ensure that the language used is clear and concise
• Check that the agreement is compliant with state and federal laws

Once you have completed this step, you will know that you have accurately described the purpose of the agreement and outlined the rights and responsibilities of each party.

Discuss the duration of the agreement

• Consider the length of time that the agreement will require the employee to not compete in the same market as the employer
• Decide on the length of time it should be in effect for and include that in the agreement
• Make sure to review the applicable state laws when deciding on the duration of the agreement
• When the duration of the agreement is finalized, it should be clearly stated in the agreement
• Once the duration of the agreement is agreed upon and included in the agreement, the step is completed and the next step can be taken.

Determine the start date

• Consult with the employee to decide when the agreement should take effect, i.e. the start date
• Consider the date the employee began employment, the date the agreement is signed, or some other date
• Take into account any relevant laws or regulations
• Once the start date is agreed upon, record it in the Noncompete Agreement
• When the start date is determined and recorded, this step is complete and you can move on to the next step: Establish the end date

Establish the end date

• Decide on a reasonable end date for the noncompete agreement. This should be long enough to protect the employer’s legitimate interests, while not being so long that it could be deemed unreasonable
• Consider factors such as the scope of the employee’s role, their seniority, and the nature of the business in deciding on a suitable end date
• Once you have established a reasonable end date, you can move on to the next step of identifying the geographical area the agreement covers

Identify the geographical area the agreement covers

• Research the applicable labor laws to determine what geographical area the agreement should cover
• Take note of any legal requirements concerning the geographical area
• Consider the geographical area in which the employee currently works, as well as any locations where they may work in the future
• Draft the agreement to include the relevant geographical area, taking into account any legal requirements
• Have the agreement reviewed by a qualified attorney to ensure it complies with all applicable laws

How you’ll know when you can check this off your list and move on to the next step:
Once you have drafted and reviewed the agreement, you can feel confident that you have identified the geographical area the agreement covers and can move on to consider the employee’s current and future job roles.

Consider the employee’s current and future job roles

• Carefully review the employee’s job description and any other duties or responsibilities outlined in the employee’s contract.
• Consider the employee’s current job roles and any future job roles that may be assigned to the employee in the future.
• List out the specific duties and responsibilities of the employee’s job roles.
• When you have a comprehensive list of the employee’s job roles and associated duties and responsibilities, you can move on to the next step.

Specify the duties of the employee

• List out all the duties of the employee that would be covered by the noncompete agreement.
• Make sure to include a comprehensive list of duties, including any duties they may be expected to fulfill in the future.
• Review the list of duties with the employee to ensure that it reflects their current and future job roles.
• When the duties have been agreed upon and finalized, check this off your list and move on to the next step.

Describe the employee’s working hours

• Clearly define the employee’s working hours, including start time, end time, days of the week, and any other relevant information
• Outline any overtime expectations or other conditions of employment
• Specify any restrictions on the employee’s working hours, such as no work on holidays
• Make sure the employee’s working hours are in compliance with applicable labor laws
• When complete, review the agreement to check that the employee’s working hours are accurately and adequately described.

Outline the employee’s eligibility for benefits

• Research employee benefits typically offered by organizations in the same sector, or the same size as your organization
• Create a list of benefits the employee will qualify for based on the nature of their role and the company size
• Consider potential bonuses or other incentives that may be available to the employee in the future
• Note any applicable restrictions on benefits (such as eligibility requirements) to ensure there’s no confusion
• Prepare a summary outlining the employee’s eligibility for benefits and include it in the noncompete agreement
• Obtain the employee’s signature and date on the document to indicate their agreement

You can check this off your list and move on to the next step once you have the employee’s signature and date on the document, confirming their agreement to the outlined benefits.

Determine the financial compensation the employee will receive

• Establish the total amount of financial compensation the employee will receive for signing the noncompete agreement
• Consider the employee’s salary and other employee benefits that may be involved
• Decide if the employee will receive a lump sum or installment payments for signing the agreement
• Take into account the employee’s seniority and performance when setting the financial compensation
• Calculate the present value of the noncompete agreement and make sure the employee is adequately compensated
• Once the financial compensation is determined, document it in the noncompete agreement

You can check off this step and move on to the next step when you have established the total amount of financial compensation the employee will receive, taken into account the employee’s seniority and performance, and documented the financial compensation in the noncompete agreement.

Decide on the type of compensation (salary, commission, etc.)

• Consider the type of work the employee will be doing, and decide if it would be better to offer a salary, commission, or a combination of both.
• Research the industry standard for the type of compensation to ensure that the employee is receiving a fair and competitive offer.
• Discuss and determine the type of compensation with the employee, and make sure that the terms are clearly stated in the agreement.
• Once the type of compensation is decided and agreed upon, move on to the next step of specifying the amount of compensation.

Specify the amount of compensation

• Consult with financial advisors on the appropriate amount of compensation for the position
• Determine the salary structure for that position
• Determine the total amount of compensation for the employee
• Calculate the percentage of salary to be withheld from the employee in the event of a breach of the noncompete agreement
• Incorporate the terms of compensation into the noncompete agreement
• When the terms of compensation have been agreed upon and incorporated into the noncompete agreement, this step can be considered complete and the next step can be started.

Decide on the enforcement process

• Talk to an attorney and/or HR representative to discuss the best way to enforce the agreement
• Consider potential enforcement options such as arbitration, litigation, or mediation
• Determine if you will require the employee to post a bond or security deposit to enforce the agreement
• Decide if you will require the employee to sign an acknowledgement that they understand the terms of the agreement
• Set up a system for tracking and monitoring compliance with the agreement
• When the enforcement process is finalized and documented, you can check this off your list and move on to the next step.

Outline the consequences for violating the agreement

• Determine the consequences for violating the agreement, including any legal action that may be taken
• List the specific consequences for breaking the agreement, such as financial damages, loss of employment, or other penalties
• Outline the remedies available to the employee in the event that they break the agreement
• Note any other consequences, such as court costs, attorney fees, or other penalties
• Include the signature of both parties acknowledging the consequences listed

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

State the process for resolving disputes

• Identify the appropriate forum for resolving disputes, such as an arbitrator or court.
• Specify the applicable law that will govern the agreement.
• Decide whether the agreement will be binding or non-binding.
• Set out a timeline for how the dispute will be resolved.
• Outline the procedures that will be followed in the event of a dispute.

When you have completed this step, you will have a clear understanding of how disputes related to the agreement will be resolved.

Consider the enforceability of the agreement

• Research the state’s laws on non-compete agreement enforceability
• Verify that the non-compete agreement meets all legal requirements for enforceability
• Consult with a lawyer experienced in non-compete agreement to ensure the agreement meets all legal requirements for enforceability
• When you have confirmed that the agreement meets all legal requirements for enforceability, you can check this step off your list and move on to the next step.

Follow all state and federal laws

• Research and understand the noncompete laws in the state and federal jurisdiction the agreement will be enforced in
• Take into account any existing laws that will be impacted by the agreement
• Ensure the agreement does not conflict with any existing laws
• Verify that any restrictions placed on employees are reasonable and not overly burdensome
• Once you have determined the noncompete agreement is compliant with all applicable laws, you can move on to the next step.

Comply with all applicable regulations

• Read up on all relevant regulations related to noncompete agreements and make sure you understand the full scope of what’s required.
• Familiarize yourself with the regulations in your state and any other states in which the employee may work.
• Consider any additional regulations that may apply based on the type of industry the employee is working in.
• Make sure you understand what information needs to be included in the agreement to comply with the relevant laws.
• Check and update the agreement to make sure that it meets all of the legal requirements.
• Consult with a lawyer or other professional to ensure you are meeting all of the necessary requirements.

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

• Once you have read up on the relevant regulations, familiarized yourself with the laws in each applicable state, and updated the agreement to meet all legal requirements, you can move onto the next step.

Determine the language of the agreement

• Examine the state-specific laws and regulations to ensure the agreement complies with all of them
• Make sure the language of the agreement is easily understandable by both parties
• Select a language which is legally binding, legally enforceable and allows both parties to understand their rights and obligations
• Check the language is clear and does not contain any ambiguity
• You will know when you have completed this step when you have ensured the language of the agreement complies with all applicable regulations and is clear, concise and understandable by both parties.

Select a language both parties understand

• Discuss the language of the agreement with the other party and come to an agreement on a language that is mutually understood by both.
• Consider hiring a translator if both parties do not understand the same language.
• Once you have finalized the language that will be used in the agreement, you can check this step off your list and move on to the next step.

Include language that is unambiguous and clear

• Draft the agreement using plain and easily understood language
• Make sure to define any technical terms used and avoid using legalese
• Ensure that all parties are fully aware of the rights and obligations associated with the agreement
• Make sure that any provisions are not overly vague
• Double check that all parties have included their full names and addresses
• Confirm that all parties have initialed all relevant sections
• Once you have checked all of these items off your list, you can move on to the next step.

Review the agreement with an attorney

• Research local laws to ensure the agreement is legally compliant
• Meet with an attorney to review the agreement and make sure the language is clear and unambiguous
• Work with the attorney to make changes to the agreement if necessary
• Obtain a signed copy of the agreement from the attorney
• Once the agreement is reviewed and approved by the attorney, you can move on to the next step.

Ensure the agreement is legally binding

• Have an attorney review the agreement to ensure it meets all the legal requirements, such as including all required elements and that it is enforceable
• Have the attorney explain the terms and conditions of the agreement to you and answer any questions you may have
• Have the employee sign the agreement, and have a witness sign it as well
• Once the agreement has been signed by both you and the employee, and a witness has signed it, the agreement will be legally binding and you can move onto the next step.

Make any necessary revisions

• Read through the agreement and consider any changes that need to be made
• Make revisions to the agreement based on any feedback from the employee or their legal counsel
• Ensure that the agreement still meets legal requirements and complies with applicable laws
• Review the agreement to make sure all information is accurate and up-to-date
• Have the employee and/or their legal counsel review and sign off on the revised agreement
• Once the agreement has been finalized and signed by both parties, you can move on to the next step.

Have the employee sign the agreement

• Have the employee read and sign the agreement
• If the employee is a minor, have a parent or legal guardian sign it
• Have a witness who is not a party to the agreement sign the agreement
• Have the employee sign two copies of the agreement
• Have the employee, the witness, and all other parties keep a copy for their records
• Check off this step when all signers have signed the agreement.

Provide two copies of the document to the employee

• Make sure to have two copies of the noncompete agreement printed out.
• Make sure both copies of the document are identical.
• Give one copy to the employee to keep and one copy to keep in the office records.
• Once the employee has one copy and the office has one copy, you can check this step off your list and move on to the next step.

Have the employee sign both copies

• Ask the employee to read through the agreement and sign it
• Make sure the employee fills in all the required information such as date, name, and address
• Have the employee sign both copies of the agreement
• Ask the employee to provide a witness to sign the agreement
• Make sure the witness also fills in all the required information such as date, name, and address
• Check that the documents are properly filled out and signed
• When you’ve verified that all the documents are complete and signed, you can move on to the next step of retaining one copy for the employer’s records.

Retain one copy for the employer’s records

• Collect the signed copy of the agreement from the employee
• File the copy of the agreement in a secure place with the company’s other important documents
• Log the date the agreement was signed and the employee’s name in the company’s records
• Check off this step from your list when the signed agreement is filed and logged

FAQ:

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

Asked by Jonathan on Apr 18th 2022.
A: When drafting a non-compete agreement, you should consider the jurisdiction in which it will be enforced, the type of business you run and the nature of the industry or sector, as well as any specific requirements that may be relevant to your company or employees. It’s important to think carefully about the scope of the agreement; whether it should be limited to a certain geographic area, or whether it should apply to particular products or services. Additionally, you need to consider how long the agreement should last and whether there are any provisions that would allow an employee to leave despite having signed a non-compete.

Q: How can I ensure that my non-compete agreement meets legal requirements?

Asked by Ashley on Mar 9th 2022.
A: To ensure that your non-compete agreement meets legal requirements, it’s important to consult an experienced lawyer who has expertise in this area. They will be able to advise on the specifics of your jurisdiction and industry, and ensure that your agreement complies with both state and federal law. It’s also important to make sure that your agreement is fair and reasonable; if it’s overly restrictive or too long in duration, it may be considered unenforceable in a court of law.

Q: Are there any differences between US and UK non-compete agreements?

Asked by Jessica on May 2nd 2022.
A: Yes, there are some differences between US and UK non-compete agreements. For instance, in the US, non-compete agreements are generally enforceable if they are reasonable in scope and duration and protect a legitimate business interest. In the UK, however, they must be necessary to protect a legitimate business interest, be reasonable in scope and duration, and not restrict an employee’s ability to earn a living more than is reasonably necessary. Additionally, the UK has specific laws relating to the inclusion of garden leave clauses in non-competes which do not exist in the US.

Q: Are there any exceptions to non-compete agreements?

Asked by Matthew on Feb 12th 2022.
A: Yes, there are certain exceptions which may apply to non-compete agreements depending on the jurisdiction in which they are being enforced. For example, some states have laws which prohibit non-competes for certain professions such as doctors and nurses. Additionally, some jurisdictions may invalidate a non-compete if an employee is fired without cause or if an employer does not provide sufficient consideration for signing a non-compete agreement.

Q: What is the difference between a non-solicitation clause and a non-competition clause?

Asked by Jacob on Jul 4th 2022.
A: A non-solicitation clause is typically used to protect an employer from having their employees solicit their customers or employees after they have left the company. This type of clause typically prohibits an employee from reaching out to customers or other employees with whom they had contact while employed with the company and attempting to persuade them away from that company’s business interests. A non-competition clause is typically used to protect an employer from having their employees enter into competition with them after they have left the company. This type of clause typically prohibits an employee from working for or setting up competing businesses within a certain geographic area for a certain period of time after leaving their employment with the company.

Q: What should I include in my employee handbook regarding Non Compete Agreements?

Asked by Michael on Aug 7th 2022.
A: When creating an employee handbook regarding Non Compete Agreements, it’s important to include clear language outlining when such agreements may be required and what specific terms need to be included (such as geographical scope and length of time). It’s also important to explain how such agreements will be enforced (i.e., what disciplinary action will be taken if an employee violates them) as well as any exceptions that may apply (such as if an employee is fired without cause). Additionally, it’s important to provide employees with contact information for legal advice if they have questions about their individual situation before signing such an agreement.

Q: Can I use Non Compete Agreements for freelancers?

Asked by Christopher on Jan 21st 2022.
A: Yes, Non Compete Agreements can be used for freelancers depending on the jurisdiction in which you operate as well as individual state laws related to such agreements. However, it’s important to consider whether such agreements are actually necessary for your particular situation; for instance, if you are hiring freelancers for short term projects or those who don’t have access to proprietary information related to your business interests then a Non Compete Agreement might not be necessary or appropriate. Additionally, it’s important to ensure that any Non Compete Agreement you do use is reasonable in scope and duration so that it can be enforced legally if necessary.

Q: Are Non Compete Agreements enforceable internationally?

Asked by Joseph on Dec 1st 2022.
A: It depends; Non Compete Agreements may be enforceable internationally depending on the jurisdiction in which they were signed as well as individual state laws related to such agreements within each country involved. It’s important to research applicable laws before attempting international enforcement of any Non Compete Agreement; additionally, it may also be beneficial to consult with experienced legal counsel who have expertise in this area before taking any action related to international enforcement of such agreements.

Q: Are Non Compete Agreements enforceable if they are signed after employment has ended?

Asked by Daniel on Oct 10th 2022.
A: This depends on individual state laws related to such agreements; generally speaking, Non Compete Agreements are only enforceable if they were signed while the employee was still employed with the company (or within a certain period of time after employment has ended). Additionally, even if such agreements were signed after employment has ended, they may still not be enforceable unless certain conditions have been met (such as providing sufficient consideration for signing). It’s important to consult with experienced legal counsel who has expertise in this area before attempting enforcement of any post-employment Non Compete Agreement.

Q: Is it possible for me as an employer to waive my right under a Non Compete Agreement?

Asked by Ryan on Sep 30th 2022.
A: Yes; employers generally have the right under most jurisdictions’ laws to waive their right under a Non Compete Agreement at any time provided that all parties involved agree (including any affected employees). However, before waiving your right under such an agreement it’s important to consider whether doing so would negatively impact any other parties involved (such as other employers who might benefit from that employee being bound by the agreement) and/or your own business interests (such as proprietary information or trade secrets). Additionally, it’s important to consult with experienced legal counsel who has expertise in this area before waiving any rights related to a Non Compete Agreement.

Example dispute

Suing Businesses for Noncompete Agreements

• Plaintiff can raise a lawsuit referencing a noncompete agreement if they can prove that a business has broken the terms of the agreement.
• The plaintiff must provide evidence that the noncompete agreement was violated by the business, such as using trade secrets, poaching employees, or competing in the same market.
• The plaintiff can seek damages for any harm to their business caused by the breach of the noncompete agreement.
• Settlement may be reached through mediation or arbitration, or the court may award damages if the plaintiff can prove the breach was willful.
• Damages may be calculated based on the amount of lost profits and other costs caused by the breach of the agreement.

Templates available (free to use)

Confidentiality And Noncompete Agreement

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