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Why employers may need non-compete agreements

On Behalf of | Mar 11, 2020 | Business Law Litigation

Non-compete agreements may sound intimidating and restrictive to employers trying to make sense of a contract. While not all companies use them, there are legitimate reasons why this part of an employment contract may be important.

What is a non-compete agreement?

A non-compete agreement is meant for just what it sounds like: to keep employees from helping companies that are competition to their own. Signing a non-compete agreement basically ensures your loyalty to your company for a certain period and restricts you from working with other businesses in the same or similar field.

While employees are not required to sign a non-compete agreement, refusing to do so could keep them from getting or keeping a job.

Why might they be necessary?

There are three main reasons that employers want employees to sign non-compete agreements, all meant to protect legitimate business interests.

  1. Company trade secrets and confidential information – Many companies have things they keep secret from the general public and competitors. These can include customer lists, recipes, business strategies and prices. When employers offer someone a job, they are also giving access to many of this confidential information, so it’s always smart to protect it.
  2. Partner companies’ or customers’ trade secrets and confidential information – Depending on the industry, companies may partner with others and service customers. Both situations often give people within the company access to the confidential information of others. These types of agreements often go with non-disclosure agreements to protect the information that others entrust the company with.
  3. Goodwill – Goodwill refers to the reputation that a company has within its community and can have a huge impact on business dealings. To protect that reputation, non-compete agreements can include expectations for the employees’ role.

Non-compete clauses should be used to protect the legitimate business interests of a company, but they also must acknowledge an employee’s right to seek other employment.

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