Countersign Non-Compete Agreement Template Made Easy

Countersign non compete agreement template

- Hi, everyone. I'm attorney Aiden Durham with 180 Law Co in Denver, Colorado, and welcome back to all up in my messy, disgusting moving business. Just kidding. It's All Up In Yo' Business. (upbeat guitar music) In this episode of All Up In Yo' Business, I'm gonna break down some of the basics of non-compete agreements, tell you guys what they are, why they're important, and kind of generally how they work in the law. But before we get into it, please be sure to like, subscribe and share, and don't forget to check the description for some links to additional information and resources. And finally, as with last time, I'm moving. Well, I've recently moved, and I'm still in the process of unpacking and getting stuff organized, so ignore the terrible mess behind me and bear with me while things get adjusted around here, okay? Thanks. So, what is a non-compete agreement? A non-compete, also known as a non-competition, a covenant not to compete, a non-compete agreement is a restrictive covenant between an employer and an employee, typically, that puts some restrictions on what the employee can do once they're no longer employed by that employer. And generally speaking, they will restrict, in one way or the other, the employee from competing with the employer's business. Employers use non-compete agreements to protect proprietary information like their trade secrets or other important confidential information. It's not solely for the purpose of just keeping someone from competing with you. It's more for the purpose of protecting some proprietary or important information of the employer. Now, non-competes aren't always between employees and employers. That's just kind of the context that I'm gonna talk about them in today, but non-competes can come up in other situations such as business sale or purchase, or some kind of a merger or even business partnerships. There can be non-competes in a lot of other contexts, but generally, for the most part, they kind of all work the same. That's tough to say, actually, because non-competes are pretty... They always work differently, but for the most part, the things I'm gonna be talking about will apply in employer-employee non-compete relationships and other non-compete situations, too. So, like I said, non-compete is typically used primarily for the benefit of the employer, and it's for the purpose of protecting the employer's trade secrets, their intellectual property, their proprietary information, things that this company, this employer has, that if an employee went and took to another company or if that employee started their own company using that proprietary information, it could really damage the business of the employer. So that's why these non-competes are typically used is to really just protect the important data and the important information of the employer that the employee may have come into contact with or been familiar with. And a lot of times when we're dealing with confidential or proprietary information of an employer, typically we'll also use something like a confidentiality agreement or a non-disclosure agreement which, in itself, does help to protect that confidential information. An NDA or a confidentiality agreement would typically put restrictions on the employee or whoever's receiving the confidential information, and keep it so that that person can't use or disclose that information for any other purpose other than why it was given to them in the first place. So, a lot of times, these non-solicitations or... I'm sorry, these NDAs or these confidentiality agreements will suffice to protect a good deal of employers' information, but in situations where an employee might've been very high level or have a lot of exposure to trade secrets or other proprietary info, then sometimes we wanna take some extra steps to protect that information and the business of the employer by using these restricted covenants or restrictive covenants such as non-competes or non-solicitation agreements. I'm not gonna talk a ton about non-solicitation agreements in this video 'cause that will take forever, but just so you all know, a non-solicitation is another restrictive covenant similar to a non-compete in that it just prohibits someone from soliciting customers or clients or employees or other people who have been involved with the employer. So, basically, the employee can't go in and, like, poach or take all the business. But, so, those are kind of similar to non-competes in that sense. So, right off the bat, it's important to say that not all non-competes are created equal, and not all of them are enforceable. And in fact, it is very, very dependent on your state and your jurisdiction when it comes to the enforceability of a non-compete and what needs to be in there in order for it to be enforceable in the first place. Courts, generally speaking, aren't big fans of non-competes because, for the most part, it... They recognize that it can prevent an individual's ability to make a living and to, you know, make an income and support their lives and all of that. So, it's not easily going to be enforced in a lot of situations. But there are certainly times when non-competes are upheld, are completely valid and enforceable. There are, however, some states where non-competes are invalid just by default. They're just, we don't do them unless certain circumstances exist, or except for a few certain situations. So there are some states where, just, kind of across the board, non-competes are invalid except for certain circumstances. So, again, this is gonna vary state by state and jurisdiction by jurisdiction, but, generally speaking, non-competes are used for a few reasons. Number one, again, to protect valuable, proprietary info or trade secrets. Also to help uphold the value of the goodwill of the employer. And then, typically for reasons of, like, investing in employee training or something. If you hire an employee and they have no idea what they're doing, and you have to put a lot of time and money and effort into teaching that person what to do, training them on their entire job, then usually, you know, you don't want that person to then hit the road, start their own business, competing with you using all of the skills that you just taught them. So, those are kind of the typical reasons that a non-compete is going to be used. There are always, you know, other situations where this comes up but, but those are kind of generally situations of what we want to protect with a non-compete. So, like I said, in some jurisdictions, non-competes are just, for the most part, invalid and not enforceable. In California, for example, their state statutes say that non-competes are unenforceable in employment situations, so an employer putting a non-compete against an employee for the most part is unenforceable, but they do allow it in situations of a business purchase or a merger. And, that doesn't mean that employers in California are completely out of luck when it comes to protecting their confidential info. Just because you may not be able to use a non-compete with employees, you can still protect information with those NDAs or confidentiality agreements, too. Same goes for Colorado. Colorado is one of these states that generally just doesn't like non-competes. In our statutes in Colorado say non-competes are invalid and unenforceable, except in certain situations such as the purchase of a sale, or the sale and purchase of a business or a merger or acquisition or situations where it is a very high level executive position that the person may have been exposed to a lot of very valuable or confidential information. So there are exceptions to these rules, but, such as Colorado and California, I believe North Dakota, Oklahoma, I think Texas probably. There are certainly a handful of states that just kind of across the board don't like non-competes, and won't enforce them except in very specific circumstances. Speaking of Texas, if any of you are in Texas and want to know more about non-competes, I really encourage you to check out my friend Zach Wolfe on YouTube and on his blog. He is the Texas non-compete lawyer. I'll link to him down in the bottom, but he's one of my good buddies from social media and a great lawyer and knows a lot about non-competes, especially in Texas, so I recommend you guys check him out, too. So, there's first the question of, is my non-compete enforceable to begin with depending on your state, your jurisdiction's laws. Then, there are gonna be issues of certain industries where non-competes may not be enforceable. This applies a lot in the legal industry. Us lawyers, we generally can't really restrict each other, can't use non-competes, like, in law firms or lawyers. Because that is preventing the general public from access to legal counsel by putting a non-compete on me, for example, if I worked for a law firm, now people who wanted to work with me wouldn't be able to, and that's against public policy, so in the legal profession, non-competes are pretty frowned upon. Same goes with the medical profession. Again, courts don't want to prevent people from seeking medical attention or being able to get medical attention from their preferred doctor, so putting non-competes on medical professionals typically, in a lot of states, is not gonna work or is gonna be pretty hard to enforce. There are also some jurisdictions that have restrictions on non-competes with regard to low wage workers or minimum wage workers, so, in some states if the worker is being paid, you know, the federal or state minimum wage, then those non-competes are gonna be largely unenforceable. But again, all of this is very dependent on state law and your jurisdiction, so if you've got questions about your particular state's non-compete laws or how they might be enforced, I really encourage you to talk to a lawyer in your state about that because I don't know the laws of every state, and even if I did, I wouldn't wanna spend a video talking about all of them 'cause that might be a little boring. But, anyway, you guys get the point. So, now that we know kind of a little bit about what a non-compete is, what it does, how it may or may not be enforced, let's talk about how we actually make one that will hopefully be upheld and valid and enforceable. So, a non-compete agreement is a contractual obligation, and so, by virtue of that, it has to contain things that create a contract. In a nutshell, a contract, legally speaking, is an agreement between two parties, and there has to be some form of consideration, which is, like, one party giving something up in exchange for what they might be receiving. Again, I don't wanna go super into this because it's pretty detailed, but in order for it to be a valid, enforceable contract, there has to be a bargain for exchange and some form of consideration, which, typically, in the employer-employee context would be, like, getting a job or giving up the ability to fire an employee if there's some sort of employment term or something in the contract. In a lot of jurisdictions, employment is at will, which means that an employee can quit or can be fired at any time for any reason or with no reason. And so, in those situations, sometimes the promise of continued employment will be sufficient consideration to uphold a non-compete. Sometimes it won't. Again, it all really depends on the jurisdiction. But, kind of, the idea to think about is that in exchange for agreeing not to compete, I am receiving the benefit of employment. And so all states where non-competes are enforceable, all states have placed some restrictions on what exactly can be restricted in the non-compete. And, generally, non-competes have to be reasonable in scope as far as duration and geographic reach of the non-compete. And again, this is because there's this balance between wanting to protect the employer's confidential information, but also wanting to protect the employee's ability to work and to make a living. So, when we are trying to enforce these, one of the big first questions is going to be, is the duration and scope of the non-compete reasonable? And what is reasonable? Again, depends on your jurisdiction. It's always going to be a little different, what's reasonable here, what's reasonable there. But, so, for example, a commonly phrased non-compete might say that the employee won't be involved with or own or have an interest in a competing business for the duration of one year within the state of wherever the employer is operating. Or, maybe a term of two years within the... within 50 mile radius of any of the employer's office locations. Something like that. Again, they're really customizable. It can be drafted however the situation fits, but the purpose, the idea is keeping it reasonable. And a lot of times if the duration is really high, so, if we're trying to restrict someone for five years, then the geographic scope needs to be relatively low, and vice versa, if we wanna put a big geographic scope, like you can't compete anywhere in the United States, then we need to keep the duration pretty low, like, for a month, just for example. Most courts, generally speaking, will enforce non-competes with scopes up to two years. That's kind of the time frame that I hover around when I'm working on non-competes for my clients. We know that two years, in a lot of situations, is considered reasonable. But, again, it also has a lot to do with the scope of the... the geographic scope of the restrictions and it really depends on the circumstances in particular of the employee. If they were a very high level employee that had their hands in a lot of things and had a lot of exposure to proprietary information, then that standard of reasonableness is gonna be a bit higher. But if it's like an administrative level where the employee didn't have a whole lot of exposure to confidential information, or if their role was smaller, or if their time with the employer was very short, then the same things that would fit for that high level employee wouldn't necessarily fly for that lower level employee. So, it's a delicate balance of a million different factors, but primarily based on the reasonableness of the scope and duration of the non-compete. And then, the reasonableness of the geographic scope is also gonna be really dependent on the employer's business and where the employer does business, where their office or offices are located. There's gonna have to be some, you know, genuine, real connection between this geographic scope and what the employer actually does. If you're, you know, a brick and mortar store or a office in one city, and your entire client base is really in that city, then you're gonna have a hard time putting any non-compete restrictions that keep employees from competing outside of your state, if, even really outside of that city. So, it has to be reasonable in light of the employer's circumstances, too. Now, of course, in our modern world, it's pretty common for companies to be Internet-based and not have a physical location or work with people all over the country or all over the world, and so, sometimes having a geographic scope doesn't really make sense because it's all over. And so, again, state, every jurisdiction is different, but there are situations where a non-compete can still be valid and enforceable if it doesn't have a geographic scope, so if we're a virtual, worldwide company, we can potentially put a restriction for employees not to compete with us anywhere in the world, but, again, it has to be kind of balanced with the scope or the duration of the restriction, and typically, we wanna be a bit more specific with regard to what competing is. So, again, if we're gonna be kind of on the higher end of reasonableness with scope or duration, then we might wanna be really specific as to what competing means, and be very limited with, this is the specific type of business or business operation or company that would be considered competing. So, it still allows the employee to do similar types of work or continue in their same field of employment, but, except for, maybe, particular, specific fields or industries. So, as you guys may have picked up, it's kind of tough to talk about non-compete agreements because they are different in every state, every situation, just like everything with the law. But, really, non-competes and restrictive covenants like non-solicitations very much vary state by state. And so, if you need help or if you have questions or if you're looking for information about non-competes or non-solicitations, it's super important that you consult with an attorney in your state. But overall, for the most part, non-compete agreements are a great way to protect your business' intellectual property, proprietary information, and to kind of protect the goodwill and the potential outcome for your business. But, so, if you're in a state or in a situation where a non-compete isn't going to apply, or probably won't be enforceable, then, again, using an NDA, a non-disclosure agreement, or a confidentiality agreement is going to be a very good way of still protecting that confidential information without risking an unenforceable non-compete. And here's kind of a common conversation that I have with a lot of my clients. In Colorado, again, non-competes are, for the most part, frowned upon, and unenforceable unless certain circumstances exist. And I'll tell my clients that, but often they will still want to do it, and so... And I have this conversation a lot in consultations and stuff, too. The idea is that, sure we can write this non-compete. If you wanna keep some employee from competing if they quit or if they're fired, we can write it. We can put it in the contract. I'm going to do everything I can to make sure it's enforceable, but if the employee tries to challenge it, or if the employee competes and we try to enforce it, there's a good chance it's not gonna be upheld. And I have to tell my clients that a lot because I'm their advisor. I'm telling them what they can and can't do, but they're still in the driver's seat, and if they want a non-compete in their agreement or in their contract, I can tell them about why it probably won't work, but we can still put it in there and hope that if the need arises that it would actually be enforceable. And that's a situation that I see a lot because we don't know if a non-compete's going to be enforceable until we try to enforce it, so, again, when it comes to non-competes, there's a lot of moving pieces and a lot of different factors. That's all for this episode, folks. Drop a comment below. Let me know what you think. Again, please don't ask me questions about your state's issues, or don't ask me questions about your non-competes, because they're all gonna be different. I don't know all the states' laws. I don't know all the laws, so talk to an attorney in your state if you have questions about enforcing or drafting or how to handle a non-compete agreement. Thank you all so much for watching. I'm Aiden Durham, and I'll see you next time. (relaxing music)