Guide to Noncompete Agreements

Choose an applicable type of agreement

There are four basic types of noncompete agreements. The classic noncompetition agreement forbids an employee from working for a competitor or directly competing against the employer after termination. Nonsolicitation agreements prevent employees from otherwise soliciting the employer's clients. Nondisclosure and confidentiality agreements deal more with intellectual property and promise that information learned will remain secret. Confidentiality refers to the employer's discretion as well.

I recommend: Begin with a LawDepot sample noncompete agreement. See if the sample fits your business and modify as necessary. Other sample forms are available at CCH, SmartBiz.com, Envision SBS and Internet Legal Research Group.

Be specific about what is protected

Noncompete agreements protect trade secrets; for example, information that is not general knowledge or is specific to your company. Broad statements about "company information" do not hold up well in court. Specific examples of hardware, client lists or blueprints make an agreement that is easier to protect.

I recommend: Use design tools at Designers Toolbox to hone your agreement. If possible, have the agreement checked by an attorney. While drafting your agreement, refer to My Employment Lawyer or MedLawPlus for frequently asked questions.

Consider duration and penalties

Thou shalt never compete until the end of time is an unreasonable noncompete agreement. Enforceable noncompete agreements usually cover one to three years after the term of employment. A successful agreement is reasonable in duration and scope, and is beneficial to both employee and employer.

I recommend: State-specific legal forms at LawGuru outline what guidelines apply to noncompete agreements in your home state. Use this information to draft a fair and thorough document.

Make sure applicable parties sign the agreement

Not all employees need to sign a noncompete agreement. Mailroom clerks with no access to valuable information do not need to sign an agreement. If the head of IT (or other employees with access to trade secrets) does not sign an agreement, however, you can take no action against them if they use your company's knowledge against you in the future.

I recommend: Learn who needs to sign noncompete agreements and what exactly they are prevented from doing at Entrepreneur magazine. A general rule is to present the agreement to employees who have enough company information to quit and start up a rival business against you.