If you own an automotive or manufacturing business, your employees likely have access to trade secrets and other sensitive information that you do not want to fall into the hands of your competitors. Entering into a non-competition agreement with your employee prevents them from taking a job with a competitor upon leaving your company, allowing you to protect your business interests.

However, non-competition agreements are not without controversy. According to FindLaw, the potential limitations on a former employee’s right to earn a living causes courts to scrutinize non-competition agreements closely during litigation. The validity of a non-competition agreement depends on the following three factors.

Reasonableness

The reasonableness of a non-competition agreement depends on its scope and duration. The court does not believe that it is reasonable for a company to impose a non-competition agreement in a geographical area in which it does not do business, nor does it generally believe that it is reasonable to require such an agreement to endure in perpetuity. In cases involving an unreasonable non-competition agreement, the court may refuse to enforce it, or it may modify the agreement to limit the scope and duration so that the terms are more reasonable.

Legitimate business interest protection

Legitimate business interests include protection of nontangible assets, such as confidential information. You may claim protection for your confidential information if you can show that it gives you a competitive edge that you would lose in the event of a confidentiality breach and that you have taken reasonable measures to maintain its secrecy.

Support by valid consideration

In other words, in exchange for his or her promise to refrain from competition, limiting future job prospects, your employee must receive something of value in return. Employment itself is valid consideration if you ask the employee to sign the agreement prior to the beginning of his or her employment. However, if you request a non-competition agreement of an existing employee, he or she must receive something else of value that was not otherwise part of the original employment agreement, such as a promotion. The mere continuation of employment is not a valid consideration, nor is any benefit that the employee would have received anyway.

The information in this article is not intended as legal advice but provided for educational purposes only.