A noncompetition agreement is designed to keep the proprietary and other elements of a firm's success from being used by former owners or employees in a competing new venture. The agreement could bar a former owner from establishing a competing business, for example, or it could preclude former employees from using information such as secret processes, client data, or customer lists. It could also prohibit a former employee from soliciting the firm's key suppliers or its employees.
In most states—a notable exception is California—noncompetition agreements are enforceable at least to some degree. A court is unlikely to view an agreement favorably, however, if the agreement is not reasonable or is overly broad, says Kenneth Schmeichel, a partner in the Cleveland law firm of Calfee, Halter & Griswold.
The contract should include a detailed description of the product, service, or information to be protected; the period covered (typically one or two years, depending on the industry); and the agreement's geographic scope, which may include markets the company has plans to enter.
"The important thing is that an agreement puts on record what the employer views as confidential information and shows, by the employee's signature, that he or she recognizes that," says Schmeichel. Before contacting a lawyer to draft an agreement, companies can save time and money by identifying exactly what they want to protect, taking into account their own situation and their particular trade or industry, Schmeichel says.
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