Using Non-Compete Agreements to Protect Trade Secrets

To avoid losing valuable trade secrets and employees, many business owners require employees to sign a non-compete agreement. Basically, when an employee signs a non-compete agreement, they promise not to work for any of the company’s direct competitors for a specified time period after leaving the company. What kind of information can non-compete agreements protect? And, what effect does a person’s right to earn a living have on these documents? Read on to find out.

What Non-compete Agreements Protect

Generally, non-compete agreements protect information including, but not limited to, formulas, patterns, methods, processes, techniques, programs or devices that (1) derive independent economic value from not being generally known to other persons who might obtain economic value from its disclosure and (2) are the subject of reasonable efforts to maintain secrecy.

Thanks to this broad definition, many different kinds of information and trade secrets can be protected through non-compete agreements. That said, non-compete agreements must be reasonable, as the law also puts a high value on the right of an individual to earn a living.

Keeping Non-compete Agreements Reasonable

In order for a non-compete agreement to hold up under scrutiny in a court of law, there are three important factors you must keep in mind when creating the document.

It is best to offer a benefit to the employee who signs the non-compete agreement. If an employee signs the agreement at the time they are hired, the job they receive is compensation enough. However, if it becomes necessary that an existing employee sign a non-compete agreement, you may need to offer them a raise or promotion as part of the deal.

You need a valid business reason for creating the non-compete agreement. At no time should a business owner create a non-compete agreement as a means to punish employees that leave their company. Valid business reasons can include protecting a customer base that you have worked to create over a long period of time or protecting trade secrets.

You should be selective about which employees sign non-compete agreements. Non-compete agreements will only be held up in court if the employee truly had access to sensitive information.  

With these three factors in mind as you draw up your non-compete agreement, you can protect your business, including all of your trade secrets and client lists. If you are not sure how to go about creating the document, please feel free to contact me for assistance.

Kelly G. Swartz is a patent attorney licensed to practice in front of the United States Patent and Trademark Office and in the state of Florida.  She limits her practice to intellectual property law including patent, trademark, copyright, and trade secrets.