Do You Really Need Employees to Sign a Noncompete Agreement?

On Behalf of | Apr 1, 2022 | Business Law

The success of a business depends on factors beyond making a good product or delivering a reliable service. It also relies on the decisions a business owner makes when securing valuable, proprietary information and keeping it from competitors.

One tool that many business owners use is a noncompete agreement. But are they really necessary? Or even effective?

Know the limits

More and more businesses have embraced the protection they believe noncompete agreements can offer. However, there are limits to what these agreements can protect and how companies are allowed to use them.

For instance, generally, courts set aside agreements that are overly vague, broad, or restrictive when those limitations serve to protect no legitimate business purpose, or do not relate to the specific business operations.

Minnesota courts are simply not inclined to put unnecessary restrictions on former employees’ ability to find new work. In recent years, low-wage earners have been disproportionately affected by unnecessary, overly restrictive noncompete agreements. Companies have used them to stop employees from seeking jobs with better pay or benefits, even when the employees do not have any special knowledge or access to protected information.

For this reason, Minnesota lawmakers are pushing legislation that would limit the use of noncompetes to specific situations.

Are there other options to protect a business?

If you determine that noncompete agreements are not a good fit for your employees, you can still protect your business and valuable information from a departing or angry employee.

Options like non-disclosure agreements and confidentiality clauses can allow businesses to identify protected information and restrict employees from sharing it with others.

Further, business owners can examine systemic policies and procedures to secure proprietary information and keep employees from misusing data. Some options can include:

  • Providing training for handling sensitive documents
  • Conducting exit interviews with employees
  • Restricting internal and external access to company information

These measures can protect a business’s assets in ways similar to a noncompete, but without the use of a controversial agreement that may not stand up in court.

Noncompete agreements can be powerful tools, but they are not suitable for every person at every business. Before signing any type of contract, it can be crucial for both employers and employees to examine the limits and protections it may, or may not provide.