A non-compete agreement is a contract between an employer and an employee. It stops the employee from working for a competitor or starting a competing business for a certain period after leaving the company. The main aim is to prevent employees from using the knowledge and skills gained at one company to benefit another. 

Why Non-Compete Agreements Matter?

The following points highlight the need for Non-compete agreements:

• Protection of Trade Secrets and Confidential Information: Non-compete agreements protect trade secrets and confidential information and prevent them from reaching competitors.
• Maintenance of Client Relationships: It stops former employees from taking clients to a new job and keeps valuable clients.
• Retention of Key Talent: It helps in maintaining a stable workforce by preventing employees from leaving for a certain period.
• Investment Protection: Protects the investments done in employee training and development as they are not allowed to leave for a certain period of time. This allows the company to achieve long-term goals. 
• Reduction of Competitive Threats: It stops former employees from using inside information to benefit competitors.

Key Elements of a Non-compete Agreement

Generally, a non-compete agreement includes the following key elements:

• Duration: This section states how long the agreement is in effect. Make sure it is not too long. Generally, the duration ranges between 6 months to 2 years.
• Geographical Scope: It specifies the geographical area where the employee is restricted from working. Make sure it is limited to where the company operates and has business interests.
• Scope of Activities: This section states the activities that the employees are restricted from doing if they are leaving the company. It should be specific to what they did at the company.
• Consideration: Consideration is what the employee gets in return for signing the non-compete clause. It could be a job offer, promotion or some form of compensation.
• Damages: This states the consequences if the employee breaches the contract. This includes legal actions as well as fines.

Non-Compete Agreement vs Non-Disclosure Agreement

Both of these agreements are used by businesses to protect their interest and trade secrets. As we discussed, non-compete agreements prevent employees from joining competitors for a certain period.

On the other hand, Non-disclosure agreements commonly known as NDAs, are legal agreements that prevent employees from sharing confidential information with others. In NDAs, no clause restricts the employees from joining competitors. However, it clearly outlines what information is considered confidential and the legal actions and penalties if the employee breaches the contract.