Non-compete Agreement Template

A non-compete agreement is a document that prevents an individual or entity from competing with another party. The most common use of a non-compete agreement is when hiring a new employee.

All employees are exposed to specific confidential information depending on their responsibilities within the company. A non-compete agreement prevents the party from using this information against the company they will be working for if they decide to create a similar business or be hired by the competing company. More specifically, a non-compete agreement can prevent an employee from working in the same field for a certain amount of time, or possibly even indefinitely, due to gaining classified information during their employment.

Types of Employees That a Non-Compete Agreement Can Be Used On

Independent Contractor

An independent contractor non-compete agreement is established between a contractor and a business. The latter might want to sign the agreement that would prevent the contractor from competing with the other party for the duration of the business relationship with this company and for a specified time after the contractor has left. Simply put, this means that an independent contractor cannot work for another competing company in the same field.

Employee

In this case, an employee non-compete agreement acts as a safeguard for the company by preventing the new employee from using the trade secrets or other business-protected information gained during employment against the company, after being hired at a new workplace, or deciding to work on their own.

Release agreement

It is a separate document that waives the original agreement. This allows a person or persons in a non-compete agreement to work for a competitor, start a new business, or even to work independently without any of the previous restrictions.

Non-compete agreements are not legally binding in all states as laws regarding this type of document are not governed on the federal level and are state-specific. That is why a non-compete agreement is referred to differently in different states. Generally, they can be divided into 4 categories.

Non-compete agreements

It is the most general agreement and it has the employee’s consent to not working for competing companies or starting a business in the same industry as their former employer.

Non-disclosure agreements

Such a contract prohibits a person from sharing information that might be referred to as confidential, for instance the company’s systems and schemes, databases, ownership information, etc.

Employee non-solicitation agreements

This type of document is used to get consent from the employee who is about to leave the workplace that they will not entice their former coworkers to join them at a new company.

Customers non-solicitation agreements

In such a contract, there is a statement that a former employee cannot work with customers they dealt with at their former workplace.

Where Are Non-Compete Agreements Used?

Financial industry

Common uses in this field include non-compete agreements with hedge fund managers, asset firms, and other investment-related companies due to key employees potentially taking their ideas somewhere else. These specific employees tend to have widespread financial knowledge which can be used against employers they work or worked for.

Insurance companies

Such a type of company hires an employee to sell or administer insurance-related programs for its clients. This company is presumed to have paid the employee for their work all the while the latter helped the company get the clients.

A non-competition agreement would make it so the employee who left the company cannot go to a competing business or start one on their own, and use the knowledge gained from their previous employment related to the clients.

IT field

Non-compete agreements are a discussed topic in the IT field due to the explosion of the industry in recent years. One quick example of how it can be related to this field is if the employee is a backend developer for an IT company. During employment, this employee is responsible for the development of how the database information interacts with the browser. A non-competing act would protect the original company from the employee using the information gained during employment at a competing company, or if they decided to start a business of their own, for a specified period of time.

A non-compete agreement might vary from industry to industry, so if you want to get a non-compete agreement template that would best reflect your interests, use our online document builder. A non-compete agreement you will get will be easy to download and print which will save you time and effort.

Things to Consider When Creating a Non-Compete Agreement

If you are the one who is going to use a non-compete agreement to secure your business information from being utilized at other competing companies, here are some things to consider:

  1. Check your local state legislation. Non-compete agreements are not settled on the federal law level. Each state varies on what they consider to be “trade secrets” and what you can or cannot prevent your employee from doing. Therefore, it is important to know your local legislation first.
  2. Decide which businesses are your competitors. Consider which companies are direct competitors or ones that the employee may leave you for or be recruited to. It is also important to specify that the employee should not be able to work for themselves as well. This must be very specific because a court most likely will not prevent an employee from working on the net, but they may restrict them from working with specific programs or applications.
  3. Time period. The time period varies wildly depending on the state. Most states would say that a restrictive time period of 5 years is excessive for a non-compete agreement. Generally, a restrictive period of 1 or 2 years would be considered normal to make the employee covenant not to compete.
  4. Non-solicitation clause. As we have previously mentioned, solicitation is the act of former employees recruiting workers of their previous company to another competing business. The clause is purposed to not allow the leaving workers to do that. The non-solicitation agreement also prevents former employees from using their knowledge of past clients for their own business purposes or at a competing company.
  5. Signing. Non-compete agreements technically do not require a notarized signature but it is strongly recommended to have a notary present during the finalization of this document. It guarantees that the employee cannot say they never did it in the future. As well as that, a notary acknowledgment removes any ambiguity that could come up during court proceedings.

A free non-compete agreement template is presented on our website. Use a non compete template to make sure you have prepared a proper document that includes all the provisions required by state laws.

How to Void a Non-compete Restriction?

In a non-compete agreement, there might be a clause about the termination of the agreement under certain circumstances. However, an employee should remember that once they are signing a non-compete agreement, and it adheres to all legal requirements, they are bound to follow its provisions.

If an employee feels that they do not agree with certain provisions in the non-compete agreement, before contesting the agreement in court, they can first talk to the employer about the vagueness of the contract and possible ways to solve it. If negotiation with the employer is not successful, they can challenge the non-compete agreement in court. Here are the most common reasons for turning to the court:

  1. If a non-compete agreement includes a long timeframe, for instance, more than 5 years (which is not approved by most states).
  2. If a non-compete agreement is applied to the area where the employer doesn’t provide their services or if the entire country is chosen as the location.
  3. If the non-compete agreement involves industries that cannot be considered competing in relation to the employer.
  4. If the employee’s life or family is threatened by a non-compete agreement, for example, one of the family members is sick and the employee has to support the family.
  5. If a non-compete agreement is in any way discriminatory, for instance, is required only for males or for people aged 30 or younger.
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How to Fill Out a Non-compete Agreement

Step 1

Non-compete agreements usually start with the company name, that is, the name of the employer, and the name of the employee. Along with that, it should have the date of the non-compete agreement.

Step 2

After the employer and company name, the agreement should include the terms the employer and employee consent to. For example, they might agree that for the duration of the non-compete agreement, the employee will not work for or establish a competing business. Alternatively, a non-compete agreement might have a provision that would prevent the employee from enticing the customers of the company to change the service provider.

A proper non-compete agreement template should also state what geographical area this agreement applies to and for what time it is put in force.

Step 3

The next section in the agreement should be called “Employee acknowledgments”. It should include the wording that the employee had the possibility to negotiate the agreement with the employer and could use legal help before signing the document. The employee should also agree that the restrictions outlined in the non-compete agreement template do not constitute any sort of threat to them.

Step 4

The agreement might also offer the employee to void it by paying a certain fee to the company. However, offering this option is entirely up to the employer.

Step 5

In the section “Applicable law”, write down that states which laws should be applied to the non-compete agreement.

Step 6

The last step is to sign the document. For non-compete agreements to become valid, both the employer and employee should leave their signatures. If the employer cannot sign the document, their representative’s signature is needed.

Published: Jan 6, 2021