Home Business 4 Key Elements of a Non-Compete Agreement

4 Key Elements of a Non-Compete Agreement

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Through the course of your career in upper management, you have had many employees leave your company for a competitor and feel that your business has suffered as a result. Consequently, you make the decision to have a non-compete agreement drafted for all of your current employees to sign.

This consists of a contract where a party agrees not to assume a position with a competitor, and is enforceable under Canadian law. Businesses should consult with an employment lawyer to find out their legal obligations and responsibilities.

While the presence of a non-compete agreement will prevent former employees from affecting your business and its operations in a negative way, it is not enough to merely have one in place. The agreement needs to consider certain factors and below are the most important ones.

1.  The nature and scope of the industry

It is important to consider the competitiveness of the industry when drafting a non-compete agreement and this will help you determine whether or not such an arrangement is needed. The dynamics of competition also need to be closely considered. In industries where the practice of “poaching” is typically more common, the non-compete agreement is more relevant and enforceable. This is because competitors are likely to take advantage of confidential secrets regarding practices that the employees might be privy to.

In addition, if different companies have developed their own unique policies, practices, strategies, and service, non-compete agreements are beneficial to prevent an employee using these things that you have in place at another company that may be attempting to develop similar entities.

2. Public interest

The non-compete agreement must not go against public interest and the court system considers how it will affect the welfare of the public when making decisions regarding enforcement. The agreement must not restrict customers from getting access to the goods and services that the employer offers.

If there is need to enforce the agreement in any way, then the question of whether the community will endure undue hardship must be considered. In such as case, the non-compete agreement will probably be seen as contrary to the public interest and therefore less likely to be enforced.

3. Employer-employee relationship

The non-compete agreement that you have drafted for your employees must bear in mind the history between the employer and employee. The agreement cannot be upheld if the employer forces the employee to enter into the agreement or else the court may decide that the employee agreed to the arrangement under duress. If you decide to draft and enforce a non-compete agreement, it will carry more weight and improve the chances of it being upheld in a court of law if it was signed immediately after the employee was hired, as opposed to later on in the job.

The latter instance could portray to the court that you had the agreement signed with the intention of keeping the employee from seeking other related employment knowing full well he would be unemployed soon.

4. Potential losses

A non-compete agreement must be drafted with the aim of reasonably protecting the employer’s business. If the employer were to lose his competitive edge because of an employer divulging secrets, then the agreement would come into force to safeguard the interests of the employer and minimize losses. This only holds true if the information in the former employee’s custody is unique to the employer, and if it can be used against his business.

However, the agreement is also subject to scrutiny to ensure that it was not tailored to offer the employer unfair or undue protection. If there is proof of this, then it is likely not to be upheld in court. The protection that the non-compete agreement offers to the employer must stem from the fact that the business could suffer irreparable damage if the employee were to divulge certain details regarding its operational procedures.

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