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Non-compete Agreements – A Hurdle to Employment and Innovation?

— November 14, 2019

A non-compete agreement will seem like it’s discouraging employees, but they exist for some good reasons to protect the firm.

A non-compete agreement is an agreement between employee and employer or company that enforces the employee not to work with a competitor company under a certain period in a certain geographical area after the company terminates an employee or the employee quits. Some organizations may not recruit the employee when they are not agreeing to sign a non-compete agreement.

This agreement becomes a compulsory one when the company loses valuable employees to its competitors. Such agreements are also known as non-compete covenants or restrictive covenants or promise not to compete.

Purpose of the Non-compete agreement

The main purpose of the non-compete agreement is for the development of an organization by taking promises from an employee not to work with its competitors in the future when they quit their job at the company. This is like maintaining the trade secrets of an organization from its competitors, secrets of which employees are aware. This agreement is most commonly found in employment agreements.

How Non-compete Agreements Protect Your Business

Non-compete agreements are helpful for the company in several ways. The first thing is that it will keep employees from leaving your company to work at competing companies. The second thing is that it will protect the company’s trade secrets or other sensitive information. Employees working in your company might get a chance to know about the company’s confidential information. When they switch to a competitor’s firm, they might reveal your trade secrets to them, which leads to the growth of the competitor’s company. So what is a trade secret? A trade secret is a kind of information that can be anything such as formula, pattern, compilation, program, device, method, technique or process for which the company employers did major efforts to invent them and thus keeping them secret is essential.

When employee having access to such trade secrets leaves, he/she could reveal all those secrets to the competitor’s company. As he/she thinks like it is a personal advantage to him/her, after leaving your company. Thus, a properly drafted agreement might create some fear for your employee to avoid this act.

Importance of Non-compete Agreement Drafting

Non-compete agreements are strictly banned in some countries. But most countries allow such agreements for the safety of an organization. Such countries have strict laws to enforce such agreements and the courts strictly examine all those agreements to consider them and enforce them on an employee. So, the company should have a legal and strong reason for requiring employees to sign the agreement. Thus, there are certain things a court will consider to enforce your agreement on your employee.

  1. The first thing is your company requires a good faith business reason for asking your employees to sign the contract.
  2. The second thing that the court will look at your agreement is the benefits provided to an employee in exchange for the promises.
  3. The next thing is that your agreements should be fair and sensible like considering the geographic area, reasonable terms and allowing certain employees to engage in many types of business such as software developers, etc.

Creating a Non-compete Agreement

Person holding light bulb against a teal and pink background; image by Diego PH, via
Person holding light bulb against a teal and pink background; image by Diego PH, via

When you are creating your agreement, the company should decide other factors including:

  1. The right time to ask your employees for signing the contract and also about their goals.
  2. Whether an employee is much needed for your business, as you come to know through his/her training period? Thus, losing them to your competitor will create some issues in your business.
  3. The employee that you want to sign the agreement will have a chance to get access to the company’s sensible information.
  4. Realize the fact whether the company is at risk when you ask your employees to sign the agreement and they are not ready to do so.
  5. Don’t include any strict things like punishing your employee in an agreement, as it will create a tough agreement and doesn’t reach the court in a good way, so avoid such tough things in your contract.

Non-compete Agreements – Hurdle to Employment and Innovation?

Though non-compete agreements provide benefits to both the company and employee, it was found out that such contracts stifle innovation. So, it will just allow an employee to explore and develop his/her ideas in the same organization and thus restrict his/her employment for a certain period in a certain geographical location by this contract.


A non-compete agreement will seem like it’s discouraging employees, but they exist for some good reasons to protect the firm. A court will enforce such contracts when they find some good sensible things in your contract and thus, draft the agreement by following all the above conditions.

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