Creating Effective Non-Compete Clauses

Creating Effective Non-Compete Clauses

employment meetingOne of the easiest ways for a competitor to gain a competitive advantage is for them to acquire a company’s most valuable asset; the employees. They have the skills, experience, and knowledge competitors are eager to acquire. Effectively drafted non-compete clauses can reduce the risk that employees will end up on the competition’s payroll.

Non-compete agreements should be independent of other clauses and covenants. Ideally, it should be a standalone agreement. This limits the ability of a former employee to challenge the non-compete agreement based on trivial violations of the entire contract.

Another crucial factor to consider is the identification of consideration such as continued employment. The duration of consideration can vary widely. In Illinois, the courts interpret this on a case-by-case basis. To avoid challenges, employers should reiterate the consideration being provided to an employee under the terms of the non-compete agreement.

The agreement should identify the contractual agreement by showing what intellectual property and authority will be provided to the employee and for what period of time. It should also state an employees requirements for keeping this information confidential after their employment has come to an end either through resignation or termination.

A solid non-compete agreement should include language that allows it to be assigned to affiliates and/or third-party beneficiaries. This makes it possible to assign the agreement to any company that may partner with, or purchase a business. Should either take place, this protects the seller as well as the new owners.

Finally, a non-compete agreement must be considered reasonable. In Illinois, geography and industry influence what is considered reasonable in regard to prohibitions. As such, it is best to meet with a business law attorney prior to drafting a non-compete to ensure it is aligned with other non-compete agreements within the same industry. This reduces the ability of a former employee to challenge its validity on these grounds.

Non-compete agreements that are too broad may be viewed as unenforceable by the courts. In AssuredPartners, Inc. v. Schmitt, the Illinois Appellate Court recently ruled that non-compete agreements cannot be so broad that they would deny a former employee the right to work in their chosen career field. In their non-compete agreements, AssuredPartners, Inc. barred former employees from working anywhere in the country. The courts considered this overreach and ruled against the company.

Business will always be competitive. The best way for a business to remain competitive is to ensure their non-compete agreements are industry specific and include these elements

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