Non-compete agreements (NCAs) are used as a way to prevent losing valuable intellectual property, trade secrets or even key employees and clientele. By signing an NCA, you agree to not work for a direct competitor for a certain period of time, usually for six months to a year, after leaving the company. The following will provide examples of what to include in an effective NCA.
Why Use an NCA
Trade secrets and intellectual property give a company a competitive advantage. This can be a formula, program, algorithm, or technique. NCAs must also guard against the loss of clientele due to employee-client relationships. It is not uncommon for one good employee to have a strategic relationship with the top 10 percent of your clientele. While everyone in your organization should sign an NCA, the length of time for each agreement will vary depending on the role and access to information. Note that NCAs are not enforceable in California except in limited circumstances.
NCAs vary most in the restrictions allowed. Most agreements have time limitations; that is, they restrict someone from sharing trade secrets or taking clientele over a specific time period. NCAs may also vary with regard to distance and type of business. Some NCAs will restrict employees from opening a business within a certain radius of the company, while others will restrict the type of product or service which can be offered.
Non-compete vs. Non-solicitation vs. Non-disclosure Agreements
Some NCAs are not concerned with trade secrets, however, if your primary concern is preventing your employees from taking clients, you can have them sign a non-solicitation agreement. These are specifically meant to prevent your employee from from soliciting your clientele. Non-disclosure agreements are specifically designed to prevent employees from sharing intellectual property. These are all examples of NCAs, and the terms are often used interchangeably. Most contracts contain some form of all three agreements.