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How to Create a Non-Compete Agreement

A non-compete agreement is a vital way of restricting competition between a business and the employees, contractors or other businesses that it deals with. The agreement prevents the other party from engaging in competitive activities with the business in any location in which the business operates or sells its products and allows you to specify how long this restriction will last after the parties have ended their business relationship. The information below explains how to go about creating an effective non-compete agreement.

Party Information

Begin by entering in the relevant details for the parties involved.

  • The "Promising Party" is the party making the promise to not compete with the other party's business operations.
  • The "Protected Party" is the party receiving the other party's promise not to compete.

Either party may be a business or individual.

Duration of the Restriction

You will then indicate for how long the obligation not to compete will last. It is important that this restriction not be overly burdensome on the promising party's ability to obtain employment after the parties end their business relationship. For this reason, courts generally allow restrictions lasting anywhere from three months to two years.

If the restriction lasts five or more years, the protected party will need a very good justification for it, and even then it might still get challenged in court.

Including a Non-Solicitation Clause

You will also have the option to include non-solicitation clauses. These clauses prohibit the other party from stealing

  • the business' employees,
  • the business' customers, and
  • other business relationships.

Oftentimes, a departing employee will try to start a competing business using the business relationships obtained while under the employer. This clause effectively prevents the employee in such a situation from achieving this. Again, however, the duration of the restriction should be as narrowly tailored as is reasonable under the circumstances in order to avoid challenge in court.

Specific Restrictions

It is important to limit the scope of these prohibitions as much as possible and not include provisions that you do not need. For instance, if you merely want to prevent an employee from stealing your customers, then just include the non-solicitation of customers clause; otherwise, a court might decide to cut out all your restrictions should a disagreement arise down the road.

Executing Your Agreement

After you finish completing the form, executing your agreement is a simple matter of having both parties sign and date it. Make sure that both parties also get a copy of the agreement, and then you are done!