3 Mistakes to Avoid When Drafting a Noncompete Agreement

On Behalf of | Jan 12, 2021 | Business Law

Protecting information valuable to your business is critical for any enterprise. And there are several ways you can do this as a business owner, including drafting contracts with partners and employees.

One type of agreement you might consider is a noncompete agreement. However, be sure you take steps to avoid some common mistakes that could leave you – and your sensitive data – vulnerable to losses.

Mistake #1: Creating a contract you don’t need

A noncompete agreement restricts the employment opportunities of a person when they leave a company, and it can keep a person from working for a competitor–thereby minimizing the incentive and opportunity for them to steal or misuse proprietary information.

However, not every company or individual needs these restrictions. If a person does not have access to sensitive data, a noncompete agreement may not be appropriate. If there are already measures to prevent a person from disclosing or using valuable information, a noncompete can be unnecessary.

Mistake #2: Creating restrictions you will not or cannot enforce

Businesses that do decide to have noncompete agreements often restrict things like:

  • Industries in which a person can work
  • When an employee can seek work in similar jobs and sectors
  • Geographical areas where a person can seek employment

If these restrictions are clear and reasonable, they can be valuable. However, employers should prepare to enforce these rules and have the means to do so. Otherwise, an agreement can be of little value, and inconsistent enforcement can trigger the appearance of discrimination of retaliation.

Mistake #3: Having unrealistic expectations

Noncompete agreements come under great scrutiny in Minnesota. Courts and judges may set aside these agreements if they are unrealistic, unenforceable or unfair. Thus, it is critical to manage your expectations of these contracts.

In other words, be reasonable in the restrictions you include in a noncompete agreement. Those that are too vague or prevent a person from earning a living can make the agreement more susceptible to invalidation.

Further, discuss with an attorney what these contracts can and cannot do. Then, have supplemental measures in place to provide the comprehensive protection you hope to achieve. If a noncompete agreement is the only tool you have to protect your proprietary information, you may be exposing your business to costly losses.