DAVE RAMSEY

Let’s take a closer look at noncompete agreements

Oct 31, 2021, 5:45 AM
(Pixababy Photo)...
(Pixababy Photo)
(Pixababy Photo)

At first glance the term “noncompete agreement” sounds like so much fancy legal jargon. While it is a legal matter, it’s not quite as intimidating as it sounds.

A noncompete agreement is a legal agreement between an employer and employee that says the employee can’t enter into competition with their employer during or after the time spent working for them.

“Entering into competition” could mean working for a competitor, starting a separate company that could be seen as a competitor, giving away private info about the company, or a number of other things that could be bad for business.

The main purpose of a noncompete is to protect the company and its ideas or products. But noncompete agreements have a few pros and cons for the employees as well. We’ll get into those a little bit later.

How a noncompete agreement works

If someone is pursuing a job that requires signing a noncompete, they’ll usually find out about it during the hiring process, right before they’re hired, or shortly after they’re hired. In some cases, an employer might decide to ask employees to sign one after they’ve been working at the company for a while, depending on changes in their role or workload, or changes in the company’s products.

The noncompete agreement might come in the form of a standalone document or a clause that’s part of a bigger contract. Both the employer and employee must understand and authorize the agreement before the employee signs it.

There are a few things noncompete agreements should have to be fair and legitimate for both employer and employee:

• A concrete date when the agreement will begin.

• A reason for having the employee sign the agreement.

• Concrete dates for when the employee can’t work competitively, plus the location that’s covered by the agreement.

• Details about how the employee will be compensated for agreeing to the terms

Which jobs use noncompete agreements?

There are a wide range of jobs that use noncompete agreements. Traditionally, these have been jobs that involve a lot of top-secret research or information.

But these days, anyone who has insider knowledge about the company they work for could be asked to sign one. Employees who work in food or drink manufacturing, sales, IT, product development, publishing, news or any kind of creative field are all examples of people who this might apply to, but there are plenty of others.

Pros and cons

The pros. A noncompete agreement can:

• Protect trade secrets. This is a big pro for the company because it means employees won’t be able to share private info—like formulas, salaries, methods and practices, ideas, employee details, etc.—with competitors.

• Help lower turnover rates. Employees who don’t have any desire to switch jobs in the future may feel that an employer who requires them to sign a non-compete is a good match for them.

• Motivate employers to provide more costly training. If companies know their employees won’t take the skills learned from their training and use them to get a job at another company, employers may be more likely to invest more money into the training itself.

The cons. A noncompete agreement can:

• Create less bargaining power for the employees. Some employees can feel like they don’t have as many possibilities when it comes to negotiating pay or looking for other opportunities if they sign a non-compete agreement.

• Cause employees to leave their field. Some employees feel restricted by non-compete agreements. As a result, they avoid jobs and career fields where they would have to sign one.

Noncompete vs. nondisclosure agreements

You might’ve heard these terms thrown around, and it can get confusing because they sound similar. But there’s a simple difference between the two: A noncompete agreement is a one-way street. It’s meant to prevent the employee from competing with the company in any way, or helping its competitors.

A nondisclosure agreement is a confidentiality agreement that works both ways by keeping the employee from revealing sensitive info about the company and keeping the company from revealing sensitive info about their employees.

At the end of the day, noncompete agreements are pretty simple, but shouldn’t be taken lightly. You get to choose whether you sign one or not, but once you do, you’re responsible for sticking to the agreement you made.

If you’re asked to sign a noncompete agreement and you’re not sure if you understand the terms – or even if you do and just want to double-check that you read everything correctly – it’s a good idea to speak to an employment attorney.

They can help you make sure your employer doesn’t limit you beyond the scope of what’s typical or appropriate and that you know your rights as an employee.

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Let’s take a closer look at noncompete agreements