Should You Have Your Workers Sign Noncompete Agreements?

If you're worried about "training the competition," you may be wondering what you can do to prevent it. Unfortunately, there is no easy answer.

The legal issues around noncompetition agreements depend on the laws of your state and the noncompete agreement itself. Some states take a dim view of these agreements because they limit an employee's ability to earn a living. In a few states, like California, they're basically illegal. But even in states that recognize noncompetition agreements, such as Texas and New York, courts often impose time and geographic restrictions on them.

Consult an attorney to determine your state's law before asking employees to sign noncompetition agreements. Additionally, you have to tell prospective employees that noncompetition agreements are a condition of employment before they accept the job. Assuming they're not illegal where you are, create a reasonable agreement — there are many existing models to use — that is clearly directed at safeguarding your trade secrets and other proprietary information. This is the only recognized justification for these agreements. Information such as customer lists, manufacturing processes or techniques, sales materials, and pricing information may be protected in this way. Limit the time that an employee is prohibited from working for a competitor to one year. It will be difficult to enforce anything longer in court.

Practically speaking, though, you're probably not going to be able to stop an employee from working for a competitor. At best, you may be able to stop that person from taking the exact same type of position at a competing company.

Finally, better alternatives to noncompetition agreements are nondisclosure agreements. They're enforceable in every state and prevent competitors from acquiring your trade secrets as effectively as noncompetition agreements, if not more so.

The information here does not constitute legal advice and should not be relied upon as legal advice. If you have a legal problem, consult an attorney in your area concerning your particular situation and facts. Nothing presented on this site establishes or should be construed as establishing an attorney-client relationship between you and Gregory A. Bonfiglio or the law firm of Morrison and Foerster LLP.