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Why is Non-Compete Agreement Important in an Employment Contract

By Edited Feb 10, 2014 0 0

Competitors are among the many concerns of companies and businesses. Unfortunately, no one can change the fact that the business industry is a large arena of competing business empires and enterprises. Because of this, many employers try their best to keep up with the competition by hiring experienced and above-average employees. In some instances, an employer may even hire an employee who has worked for a competitor company. Then he will require the employee to use his skills and previous knowledge against his former company. Doesn't this seem unethical and unfair to the employee's former company?

It is not fair indeed. If you are an employer you can avoid having such problems by letting all your employees sign a non-compete agreement. A non-compete agreement is a type of contract stating that upon the termination of an employee's contract, the employee is not allowed for a certain amount of time to engage in activities that would directly put him in direct competition with his former company. There are two basic options how you can make your employees sign a non-compete agreement:

  • Include it in the employment contract. The non-compete agreement may be included in the employment contract and may be signed by the employee before he starts to work.

  • Let the employees sign a separate contract. This option may be more burdensome than the first, but this is usually the more effective of the two. If you let your employees sign a separate contract you would have more time to discuss it with them.

Aside from directly competing with the former company, employees are also prohibited from taking customers from their past job to their new company. The time frame for a non-compete agreement ranges from two to five years. The following are some of the reasons why:

  • The individual's knowledge about the former company would eventually become insignificant. Company information often gets outdated as time passes by.

  • The top customers of the company usually change after a few years, or even months. Your top ten customers would not remain in that position forever. There will always be situations where new clients and customers would begin to make dealings with you.

The non-compete agreement is a helpful way to preserve your company's trade secrets, activities, techniques and propriety information. If your employees refuse to sign such a contract, they may have plans against you and your company once they have finished their contract.



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