Noncompete Clauses Are Everywhere, but Does Your Business Need Them?

Noncompete clauses are a great tool for keeping your former employees from becoming your new competition, but do you really need them?

According to The New York Times, noncompete agreements are on the rise even in industries which have been traditionally light on paperwork. Case in point: a Massachusetts man whose job involves spraying pesticide on laws "had to sign a two-year noncompete agreement," the Times reports.

Should your business be including noncompete clauses in work contracts by default?

• Need legal advice on how your small business should operate? Consult an experienced business attorney to go over your options.

Protecting Trade Secrets

Many small businesses stake their future successes on those few trade secrets that distinguish them from their competitors. A noncompete agreement can help make sure that your best and brightest employees don't gain the benefit of your training and experience before jumping ship to your closest competitor.

However, you won't be able to keep your ex-employees out of your industry forever, so it may only be a matter of time before your star employee becomes your newest competition. Quartz reports that Vic Gundotra, credited with building Google+, took one year off work after leaving Microsoft because of a noncompete agreement. Still, that agreement didn't stop him from then joining Google and building a major part of the company's social media arm.

An alternative to noncompete clauses may be a simple non-disclosure agreement, which can prevent employees or even contractors from taking the best part of your business with them when they leave.

Is There a Legitimate Business Interest?

Noncompete agreements are not intended to punish employees for leaving your company. Instead, they are built around protecting a legitimate business interest.

One legitimate reason for a noncompete clause is to protect trade secrets or confidential information from reaching competitors. Another might be protecting long-standing customer or client relationships.

Either way, your business should keep this in mind when deciding to use a noncompete clause in an employment contract -- especially blanket clauses that attempt to be binding on all employees.

Be Reasonable

A noncompete clause won't hold legal water if you aren't reasonable in its terms. There's no magic algorithm for finding a reasonable scope, especially in the digital workplace. But a noncompete agreement should allow ex-employees to continue their careers while still protecting your business.

If you can't think of how a noncompete clause would accomplish that with an employee, it may not be wise to add one to his or her contract.

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Related Resources:

• Poll: Should Mass. Ban Noncompete Clauses? (Boston.com)
• Is Your Non-Compete Clause Valid? (FindLaw's Free Enterprise)
• Turning Trade Secrets into Non-Compete Agreements (FindLaw)
• 3 Ways to Prevent Data Theft by Contractors (FindLaw's Free Enterprise)