Examples of non-compete provisions in business contracts and why they are necessary

Entrepreneurs, business
Examples of non-compete provisions in business contracts and why they are necessary
Page content

Introduction

As an employee or independent contractor with certain clients or businesses, it is to your advantage to obtain a written contract or

agreement that clearly defines the terms of the job or project. In addition, watch for non-disclosure clauses or provisions. Ascertain that you understand and agree with the terms as defined. You must agree with the non-compete provisions stated for your company’s or client’s sake, as well as for your professional reputation.

Image Credit: FreeDigitalPhotos, jscreationz

Why Are Non-Compete Provisions Necessary?

Certain types of businesses and clients choose to safeguard their companies against similar, competing businesses. Companies that require signed contracts with non-compete provisions do so to prevent employees or independent contractors from providing their services to competing businesses. Companies often want to protect the following areas of business:

  • Client lists
  • Company procedures
  • Innovative procedures or inventions
  • New technology
  • Trade secrets
  • Other proprietary information

What Stipulations Do Non-Compete Provisions Cover?

While non-compete provisions will vary based on each individual company’s or client’s needs, certain stipulations are common. Typically, when you sign a contract with non-compete provisions, you must agree to some or all of the following points:

  • You will not provide similar skills or services to a competing business.
  • You will not provide similar skills or services within a specified geographical area.
  • You will not independently work for the company’s clients while you are employed or contracted with the company.
  • You will agree to all of these stipulations for a period of one to two years (whatever the non-compete clause states).
  • You will agree to all of the above after you leave the company or complete the project.

Examples of Non-Compete Provisions

If you have never seen or signed a non-compete provision, here are some examples (retrieved from various contracts retained by the writer of this article):

  • Example 1. Because of the trade secret subject matter of [Business], you covenant and agree that, during the term of this Agreement and for a period of one (1) year thereafter, you will not solicit the services of any of [Business]’s employees, contributors, content providers, suppliers or customers for your own benefit or for the benefit of any other person or entity.
  • Example 2. The Parties hereby agree as follows: That [Independent Contractor] shall not directly or indirectly compete with the business of [Business] and its successors and assign during the period of independent contract services and for one year following termination of independent contracting services and notwithstanding the cause or reason for termination. [Independent Contractor] acknowledges that [Business] shall or may in reliance of this agreement provide [Independent Contractor] access to trade secrets, customers, and other confidential data and that the provisions of this agreement are reasonably necessary to protect [Business] and its good will. [Independent Contractor] agrees to retain said information as confidential and not to use said information on his or her own behalf or disclose same to any third party.
  • Example 3. During [Employee]’s employment and for twelve (12) consecutive months immediately following the termination of [Employee]’s employment with [Business] for any reason (whether voluntary or involuntary), [Employee] agrees that he/she: (1) will not request, induce, or attempt to induce any Client to terminate its relationship with [Business]; (2) will not attempt to hire, attempt to employ, attempt to associate in business with or successfully hire, employ or associate in business with any person employed by [Business] or any person who has left the employ of [Business] within the preceding three months, or discuss any potential employment or business association with such person, regardless of who initiates the discussion or how the person comes to the [Employee]’s attention; (3) will not solicit, contact, perform or offer to perform any ***** services to any Client (other than on behalf of [Business]) or other person, entity, or business engaged in providing any type of ***** services without the express written approval of the President of [Business].

Difference Between Non-Compete and Non-Disclosure Clauses

You may wonder about the difference between non-compete and non-disclosure clauses or provisions. As described in this article, non-compete clauses or provisions require that employees or independent contractors not engage in any activities that would compete with their contracted company. Likewise, some contracts also include non-disclosure clauses for similar reasons. If a contract has a non-disclosure clause, it typically requires that employees or independent contractors do not reveal to anyone outside of the company the same information discussed in the section on page 1 entitled, Why Are Non-Compete Provisions Necessary?

Conclusion

As an employee or independent contractor, you may have to sign a contract that contains a non-compete provision. The main purpose of the clause is to safeguard proprietary information from similar, competing companies. Make sure you understand and agree with the stipulations described in the non-compete clause for your contracted company’s sake, as well as for your professional reputation.

Reference

Quintessential Careers. Dealing with Non-Compete Clauses and Agreements. Retrieved from https://www.quintcareers.com/non-compete_clauses.html