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Should you consider a noncompete agreement for your business?

As a business owner, you undoubtedly like to keep track of your competition. After all, the success of your business could greatly depend on how well similar companies in your area are doing and what you can do to get a leg up on your competitors. One way you can help your company is to make efforts to protect your information and limit competition.

When it comes to this type of protection, you may have concerns about your employees. Since they work for you and will learn much about your company's operations, including how to run a successful business, they could potentially use what they learn to compete against you. However, you could utilize noncompete agreements in hopes of limiting this possibility.

What is a noncompete agreement?

As the name suggests, a noncompete agreement is a contract that, once entered into, prevents another person from competing against your business in certain capacities. When it comes to those capacities, the terms of your contract must reasonably indicate a time period during which the contract is effective, the geological area affected by the contract and the type of position restricted.

For instance, if your business involves sales, your noncompete agreement cannot state that a former employee cannot work as a salesperson in any industry for 10 years across three states after leaving your company. These terms are immensely broad, and a court would likely consider the terms unenforceable in the event that someone challenges the contract.

How can you create enforceable terms?

When creating a noncompete agreement, specificity may work in your best interests. As another example, if you own a real estate brokerage, you may want to use your contract to indicate that realtors formerly under your employment cannot work listings in certain neighborhoods in the area for a year after leaving your business. However, you cannot say that a former employee cannot work as a realtor in any area, as that would be unnecessarily restricting.

Many facets need considering when creating a noncompete agreement. If the terms are too strict or the employee receives no incentives for signing, the court may consider the contract unenforceable. Therefore, you may want to speak with a legal professional who could help you better understand the laws associated with this type of agreement and how you could handle any contract disputes that may arise.

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