A non-compete agreement is a contract an employer gets into with their employee to prevent any competition in a specified period both during and after employment. The agreement bars the employees from using knowledge and secrets learned from the employer to start a competing business or work with a competitor.
The non-compete agreement can also be entered between an independent contractor and a company/ business they’re working for. These contracts are signed at the start of employment. Contractors, consultants, and employees working for a company are required to sign the non-compete agreements.
Non-compete agreements are popular in the media industry, and the information and technology sectors, besides you may also find these contracts in the manufacturing, financial sector, and the corporate world.
Types of non-compete agreements
Mainly we have two types of non-compete agreements.
1. Independent contractor non-compete agreement
An independent contractor may be a sub-contractor or consultant such as a doctor, dentist, attorney, etc. These are individuals or companies that provide goods or services to a specific business. These individuals execute their duties according to their schedule and are subject to self-employment tax.
The independent contractor non-compete agreement protects a company/ business that chooses to share sensitive business secrets such as clients, trade secrets and employees with another company or individual providing goods or services to them. In this regard, the independent contractor is barred from competing with the business that has contracted them within a specified period of time and in a specific geographical area.
2. Employee non-compete agreement
The employee non-compete agreement is a contract between an employee and their employer that prevents the employee from competing with their employer for a specific duration and in a particular geographical region. This duration may be from a period of six months to five years, but it may extend to up to 10 years in a few cases.
Other names used for the non-compete agreement
The non-compete agreement may also be referred to as:
- Covenant not to compete (CNC)
- No-compete clause
- Non-compete clause
- Non-competition agreement or
- No-poach agreement
Is a non-compete legally binding?
The legality of the non-compete agreement varies from one state to another since it’s controlled by state laws. In essence, we have four types of non-compete agreements, namely:
- Non-solicitation of employees
- Non-solicitation of customers
- Non-disclosure or confidentiality and lastly
Free-non compete agreement templates
Although you may create a non-compete agreement from scratch, the task can be challenging. The best alternative is to use our templates. You should customize the form to meet your desired needs. After filling in your document, it’s essential to seek the advice of an attorney or a legal representative to avoid flaws and omissions in the document.
Things to check before signing a non-compete agreement
An employee may decide to negotiate with their employer to terminate the non-compete agreement if possible. If not, the employee or contractor is bound by the agreement after signing based on the terms and conditions of the contract? An employee can decide to challenge the non-compete agreement in court under the following situations:
- If the agreement is discriminatory either on the basis of sex, race, etc.
- When the agreement exerts undue financial pressure on the individual or family. E.g., in cases of sickness.
- If the contract identifies unreasonable professions, sector or industries
- In case of unreasonable geographical restrictions.
- If the employer uses deceit to force the employee into the agreement
- When the employer applies an unreasonable duration for enforcement of the contract. For example, if it exceeds 5 years.
Before signing the non-compete agreement, the employee should critically scrutinize the document to the terms and conditions of the contract are reasonable.