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The importance of non-compete contracts for businesses

Imagine that you are an employer, and you have to make some difficult decision about your employees. Lay-offs are happening, and so you have to pick a few candidates to get rid of, even though you may not really want to do it. As you let the last few go, you feel a twinge of disappointment -- and yet also a twinge of security. These are talented people you are letting go of, and they have built up tremendous knowledge of your company's ways and clients.

So why do you feel secure? Well, that's where a non-competition agreement comes into play. Most companies utilize non-competes to ensure that their ways and secrets aren't given to a competitor via a former employee. Non-competes can also restrict a former employee's ability to work for a competitor of the company.

Non-competes can be signed at any time, and they do hold significant value for the employer. Of course, given the restricting nature of these contracts, non-competition agreements often come under significant scrutiny should an employee contest the document's validity. The courts will certainly look at the document with a keen eye.

So, any employer will want to ensure that their documents are as close to "ironclad" as they possibly can be. One key aspect of non-competes is their "reasonableness." In other words, if, as an employer, you make an employee sign a non-compete that doesn't seem to serve a rational purpose or if the agreement's restrictions fail to observe some semblance of a reasonable timeline, then the contract will not be deemed "reasonable."

In this regard, duration and scope are two of the biggest factors. As an employer, you certainly have legitimate concerns and needs when dealing with an employee who is signing a non-compete. Just make sure that in relation to the duration of the non-compete and the scope of the non-compete that you are being fair and reasonable.

Source: FindLaw, "Non-Competition Agreements: Overview," Accessed April 7, 2015

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