What You Need to Know About Adding Non-Compete Clauses to Your Employees' Contracts

Posted on: 2 June 2017

If you run a creative company, an engineering firm or a multitude of other businesses, you may want to include a non-compete clause in your employees' contracts. Before doing so, however, you may want to understand a bit more about these clauses. Here's the basics.

1. Non-compete Clauses Can Be Essential to Protect Your Business

When you're brainstorming with your employees, doing research and developing products, a lot of information gets shared. That information is your intellectual property, and if one of your employees leaves the company and takes those ideas somewhere else, that can create competition that drives down your prices, lowers your profits and potentially even pushes you out of the market.

In these situations, a non-compete clause can be essential to protect your business and its continued success. To decide if you need one, consider the kind of information you share with your employees and how it would affect you if they took that information to a competitor or used it to start their own business.

Also, think about the investment you make in training each employee. If an employee leaves for a competitor, you lose that investment.

2. There Are Additional Restraining Clauses That Can Be Helpful

A non-compete agreement is called a retraining clause. It "restrains" the future actions of your employee. However, this is not the only type of restraining clause you may want to include in your employee's contracts.

You may also want to add confidentiality clauses. This goes above and beyond the scenario explained above and works to protect proprietary information. You may want clauses that prevent employees from taking internal clients.

Remember, your employees build up relationships with your clients and without this type of clause, an employee may leave the company, taking a portion of your clients with them. Similarly, you may want to ban the recruitment of existing employees if an employee leaves to start their own businesses.

3. A Commercial Lawyer May Be Essential

When drafting contracts, you may not want to write the contract on your own. You may also want to avoid downloading free contracts from the internet, as they simply may not have the information you need.

Instead, you should contact a commercial lawyer with experience in employment contracts, and you should explain to that professional what you want. Then, he or she can help you draft a contract that works.

It's important that your contract meets certain criteria. Without that, an employee may be able to argue against the binding nature of the contract. For instance, in 1971, the courts heard the case Buckley v Tutty. The employee in this case successfully argued that his no compete clause was a "fetter" on his ability to seek gainful employment. As an employer, you never want to be on the opposite side of a case like that, and a commercial lawyer can help you avoid that.