Whether you’re an employee of a company or a business owner finalizing a partnership deal with another company, the non-compete clause is often included in the final contract. Should you be very worried and hesitant in signing a contract with a non-complete clause in it?
The non-compete clause
The textbook definition of a non-compete clause is that it is a form of restrictive covenant that adds limitations to the employment or sale contract. These agreements protect the business by restricting the other party from performing similar work for a specific period of time within a certain geographical area. It’s important to note that the courts do not always uphold them. In fact, the courts evaluate non-compete clause for their reasonableness to determine whether they constitute an unfair restraint on trade.
Is the non-compete clause reasonable?
You need to evaluate the non-compete clause very carefully as many of them have a lot of “bark without much bite” language in them. In other words, it’s used as a deterrent in some cases and isn’t actually enforceable because it’s too unreasonable. Most courts will evaluate a non-compete clause based on the time prohibition, the geographic scope and the description of what constitutes a competitor. Typically, the broader the restrictions, the less enforceable the clause will be if evaluated in a court of law. Therefore, if a business contract states that you shall pay x amount of dollars if you fail to meet the conditions of a non-compete clause, you shouldn’t worry so much about that particular penalty as it may not be enforceable.
Always protect yourself
Even though the non-compete clause may not be entirely enforceable, you’ll want to be very proactive in protecting yourself and/or your business. Make sure you negotiate the terms of the contract so that it is at least mutually beneficial for both parties.
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