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What businesses frequently use non-compete agreements?

On Behalf of | Mar 7, 2024 | Business Disputes

A potential problem with training an employee is that your worker may take the skills and information garnered from your workplace and apply them at a competing business. Through a non-compete agreement, you may prevent this kind of competition from harming your enterprise.

Not every company has their workers sign a non-compete, though. Particular situations clearly call for their use.

Companies with sensitive information

Any company that uses confidential information, such as trade secrets, may benefit from having their employees sign a non-compete. In these situations, a non-compete usually comes with a non-disclosure agreement that specifically binds the employee from disclosing sensitive information to a competitor.

Employees with client lists

Some companies have workers that retain a list of clients they do business with. A client list can be valuable to a company, provided that the employee who has the list continues to work for that employer. If the employee departs for another company, the employee could use the client list at the competing business.

A non-compete can help ensure that a departing worker does not use the client list for a set amount of time. It may also include an NDA to keep the employee from using proprietary information at the competing business.

After buying a business

Sometimes entrepreneurs who buy a business want the seller of the company to sign a non-compete. While some people who sell their businesses want to retire, others may want to divest a current business and start fresh with a new enterprise. This is a good opportunity to make sure the seller is not going to form a business that competes with your new acquisition.

Non-competes should be reasonable in their scope and rationale, so using one frivolously could invite a legal challenge. A careful understanding of how a non-compete protects your company should make a strong case for why you need one.