Advantages and Disadvantages of Noncompete Agreements

Advantages and Disadvantages of Noncompete Agreements

| Mar 7, 2017 | Business Law |

The three most valuable assets of any business include the employees, customer relationships, and trade secrets. A noncompete agreement can be an effective way to protect these assets. When the right circumstances are present, and when drafted and implemented properly, noncompete agreements can be enforced in the state of Florida.

However, noncompete agreements are not a one size fit all solution. There are also advantages, disadvantages and even limitations to how they can be used. Understanding what these are can help you know whether or not you should use a noncompete agreement.

Advantages of Noncompete Agreements

A quality agreement can impede or prevent employees from leaving and taking your customers with them. This can impair customer goodwill, which is considered the lifeblood of any business.

Any competitor that hires your ex-employee who is under a noncompete may become liable for tortious interference. This occurs if employers make significant investments in training workers in processes and systems and educating them on confidential and proprietary information and trade secrets. If a competitor acquires an unfair advantage by engaging the employee after this investment has been made, then tortious interference may be present.

A noncompete agreement that is drafted properly will discourage workers from leaving and joining competitors, or starting their own competing companies.

A noncompete can curtail opportunistic behavior, such as startup business competitors who try to overcome certain barriers to entering a market by picking off the competitions key employees.

Prevent rogue ex-employees from trying to compete with your business helps the remaining workforce find success without any unfair competition.

Disadvantages and Limitations of Noncompetes

A noncompete agreement has to be limited to a geographic scope and period of time. In most cases, a period of six months – or less – is considered reasonable, and more than two years is unreasonable. The period between six months and two years is considered a gray area and the battleground for litigation.

According to statute, there has to be a “legitimate business interest” underlying the noncompete and the employer and employee relationship. The business interest cannot be just to prevent competition.

The best, most qualified candidates may not agree to sign this. In demand employees often decline a job opportunity if they are asked to sign this agreement.

Many courts are resistant to enforcing a noncompete agreement.

Are Noncompete Agreements Right for You?

Not all businesses require or need employees to sign noncompete agreements. If you are unsure if they could be beneficial for your business, it is best to speak with a lawyer who understands business law in Florida. Contact the Law Office of Peter M. Feaman, P.A. to learn more.