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Pros and cons of non-compete agreements

Starting a business is a major investment – but not just an investment of time and money. The core ideas, the infrastructure and the intellectual property are equally important to your business’s identity and success. As a business owner, there’s a legitimate concern that an employee might switch teams at some point and, at the same time, share some of this vital information with a competitor.

The non-compete agreement

Non-compete agreements are just as the name implies: an agreement between employee and employer that the worker will not change jobs to work for a competitor. This typically involves specific timeframes and geography.

As we’ve already discussed, the agreements serve many benefits for employers. However, they are also controversial because, in some cases, they limit career opportunities for the employee. A one-sided contract is unlikely to be legally binding.

Risk, reward and reputation

Non-competes can draw negative attention and reaction. Many publicized disputes come in the tech industry, such as an ongoing lawsuit about an agreement between Amazon and its former product marketing vice president, who left the company for rival Google. The argument defending the non-compete addresses access to marketing practices and sales lists.

The questions at stake in such a lawsuit include:

  • Will the employee use confidential information in their new job?
  • Do the limitations of the agreement unfairly restrict new opportunities?

As these sample questions illustrate, a non-compete must balance employer and employee needs. It must be mindful of both perspectives and seek realistic solutions for both parties. In addition to these basics, there are many state-specific laws. In Washington state, where the Amazon lawsuit was filed, one factor may be the employee’s salary. New York has similar, but different, restrictions.

A delicate, but important, balance

The simple fact is that non-compete agreements, like any employment contract, need careful consideration and thorough legal review. In any scenario, a lawsuit or the threat of legal action can be cost-prohibitive to business operations, so it’s essential to keep contracts up to date with ever-changing state and federal laws.

Losing an employee is already expensive, but an additional lawsuit can be far more costly. Damages are not just financial. A public dispute damages company morale and the brand’s public and professional reputation.

A business needs to protect its most valuable assets, but non-compete agreements can be a very delicate matter. They offer important security for confidential information and practices, but a poorly constructed agreement may ask too much of the employee and, ultimately, cause damage rather than prevent it. Like any other security measure, all employee contracts should be carefully reviewed before signing.