Eight Tips for Drafting & Negotiating Compliant Non-Compete Agreements

Non-compete agreements are not easy to enforce and can be expensive to litigate. However, it is estimated that one in five labor force participants are bound by a non-compete. Non-compete agreements are mostly used in the employment context, but can also be used in partnerships, shareholder agreements, and business transactions. In employment contracts, non-compete agreements generally try to prohibit an individual from working for their employer’s competitors.

Some states like California, North Dakota, and Oklahoma generally prohibit employee non-competes, and many other states have passed laws that make non-competes difficult to enforce. In the CLE course, Drafting & Negotiating Compliant Non-Compete Agreements, Kristen Prinz gives an overview of the current trends in non-compete agreements and provides helpful drafting and negotiating tips for enforcement of these agreements. Check them out below:

 

Drafting Tips for Employers

  1. Identify the True Goal. Be certain of your client’s goals. Is the goal really to protect customer relationships? Or is the goal to prevent the loss of employees,  trade secrets or confidential information? Make sure you identify and focus on what is most important to your client.
  2. Consider the Impacts on the Business. Be aware of the client’s image and the impact that these restrictions can have on the overall culture of the business. The agreement should reflect the business culture of your client. 
  3. Keep It Narrow. Make sure it is really narrow and truly does protect your client’s interests.  Limit the non-compete terms to the actual job duties of the employee, and limit activity restraints to customers with whom the employee actually interacted. Otherwise you’ll just be drafting something that may not end up being enforceable!  
  4. Know Your Jurisdiction. Understand your jurisdiction. Be mindful of where your client is located and whether that forum is going to be friendly to enforcement of a non-compete agreement. Have a good, strong venue clause and be careful not to draft an overly broad agreement. 

Negotiation Tips for Employees

    1. Make Sure You Agree.· Make sure your client is signing an agreement they are really willing to comply with. 
    2. Negotiate! Tell your client to actually negotiate the agreement. Employees often think non-compete agreements are non-negotiable, but if you are a highly coveted employee and they really want to hire you, this is the time to negotiate these agreements! 
    3. Be Transparent. Make sure the employees share their post-termination obligations with their new employer, and try to get their new employer to back them through written assurance that they will indemnify your client in the event of an action by the former employer.
    4. Be the Plaintiff. If the employee signed an agreement that you believe is unenforceable, be the plaintiff and file an action for declaratory judgment. 

Remember, of course, to check out the laws of your state and any recent court opinions interpreting the enforceability of a non-compete agreement. Whether you are representing an employer or employee, no one wants to end up in lengthy litigation to decide whether a non-compete will stand up in court. 

To learn more, check out more of Lawline’s great CLE programs on non-competes and restrictive covenants here!

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Written by Carla Elias-Nava

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