There are many reasons why you may choose to institute a non-compete agreement as part of your onboarding paperwork when hiring employees. Non-compete agreements are helpful when it comes to protecting sensitive information and preventing former employees from starting up competing businesses in your geographic locale.
However, it is also relatively easy for an ex-employee to take the non-compete agreement to court and have it invalidated. For this reason, it is important to ensure that your non-compete agreement is valid in the eyes of the law. According to Findlaw, a valid non-compete agreement is reasonable in duration and scope.
What is “reasonable” in duration?
With any non-compete agreement, the court is going to be balancing the burden a non-compete agreement puts upon an employee as compared to the employer’s need to protect sensitive information.
In terms of a non-compete agreement being reasonable in duration, it is unlikely that any information the non-compete agreement is protecting is valuable for all time. Thus, a reasonable non-compete agreement has subjected any sensitive data to an intense valuation process and attached a reasonable duration based on this analysis. Unfortunately, there is no direct formula for this: it depends on your company and the nature of the confidential information you are trying to protect.
What is “reasonable” in scope?
In this instance, scope refers to the geographic span of non-compete agreement. Generally speaking, courts will find it reasonable to prevent an ex-employee from opening up a competing business in your direct location. However, it is not possible to prevent an employee from opening up a competing business in a location where you are not directly present.