Non-Compete Agreements: 5 Reasons Your Business Should Use Them

This guide covers everything related to non-compete agreements, from an easy-to-understand definition to the main benefits of using them. Whether you’re a small or large-size corporation manager, the following information will be useful for you.

In the post-pandemic world, businesses are more competitive with each other than ever before. This isn’t surprising, as many businesses need to beat their rivals and attract new employees – and the only way this is possible is through hard competition.

Naturally, different strategies are being used for this. One of the most interesting (and effective) strategies is the implementation of non-compete agreements.

What is a Non-Compete Agreement?

A non-compete agreement is a contract that an employee signs. This contract will prevent the employee from joining a rival employer at their period of employment is finished.

Simple enough, right?

These types of contracts have become very popular over recent years, especially in competitive industries such as healthcare and technology. The reason for this is simple: businesses don’t want to lose their employees to rivals and potentially put themselves at a disadvantage!

So, now that you know what a non-compete agreement is, let’s talk about 5 of the best reasons why your business should use them.

1.    They protect your secrets and sensitive information

No matter how many employees you have – whether it’s 100 or 1000 –all of them will know sensitive information about you and your business. If this information was provided to a rival company, it would almost certainly make life difficult for you.

For example, if you’re an app development company, one of your software engineers could end up joining a rival app company and immediately tell them about upcoming projects you’ve been developing. If this was to happen, it would spoil your plans and potentially allow your rival to release a similar app before you do.

Luckily, though, if your employees sign non-compete contracts (in this case, your software engineers), you won’t ever have to worry about this happening. Why? Because your employees would be legally prohibited from joining your rivals or creating start-ups in direct competition with you.

This is especially beneficial for ambitious businesses with lots of sensitive information regarding projects and developments.

2.    Employee loyalty

Back in the 80s, 90s, and even 2000s, the concept of a ‘job for life’ was very real. Now, though, this has all changed.

Younger generations – specifically, millennials and Gen Z – are much more open to switching jobs every couple of years. Essentially, company loyalty isn’t a priority for them, so many businesses are struggling with high staff turnover rates.

However, it’s not all bad news. Through using non-compete agreements, employees are much more likely to stay with you for the foreseeable future. This is because they will be restricted in terms of other companies that they can join, meaning they will feel incentivized to stick with you and show loyalty.

Therefore, if you’re a business owner or manager focused on building a strong and reliable team, this will be incredibly beneficial for you.

3.    Retained customers

Depending on your type of business, it might be the case that some of your employees have formed relationships with customers. These relationships might be the key to keeping these customers on board in some circumstances.

Therefore, ensuring that your employers are less likely to leave makes it more likely that your customers will stay, too. Of course, more customers mean more revenue, which is something you can’t afford to lose!

After all, it’s not a good look for any brand when their employees are switching to rivals.

4.    Financial gain

You will be more financially stable and protected with non-compete agreements in place as a business. Plus, if a former employee of yours was to join a rival, you would be able to make a claim and highly likely receive a fee.

In an age where money is key in the world of business, this is something that can only benefit you.

5.    Improved company culture

When employees are requested to sign non-compete agreements, it shows that you’re a company that cares about them and what they have to offer. In turn, this improves your overall company culture and makes employees feel valued.

Are There Any Disadvantages to Non-Compete Agreements?

As with most things in the world of business, nothing is perfect – and this applies to non-compete agreements, too.

Non-compete agreements are amazing tools to use, but they also come with a couple of downsides.

Let’s take a quick look:

  • Deterring the best candidates for roles

No matter what industry you’re in, the quality of your employees will vary from post to post. Naturally, you will want to hire the best and most talented employees possible – but non-compete agreements can occasionally be off-putting to the ‘best in class’.

This is because ambitious employees often want the opportunity to work for a variety of companies and progress up the rankings. Due to the nature of non-compete agreements, employees become limited to where they can do this.

  • Legal difficulties

Over the past several decades, there have been lots of instances where non-compete agreements haven’t been able to be enforced – it’s entirely dependent on the circumstances. For example, a non-compete agreement might not be applicable in a specific geographic area. For example, California does not allow non-compete agreements.

Conclusion

After reading this guide, you should now be an expert on non-compete agreements. Now, it’s a case of deciding whether you want to use them or not.

If you’re a highly competitive business with a lot of rivals in your regional area, then it’s recommended that you make non-compete agreements part of your company setup. This way, you will make your employees more loyal whilst ensuring that your trade secrets are kept locked away from the eyes of competitors.

Remember, non-compete agreements are becoming more and more common, so most employees in competitive industries are not scared by the prospect of signing them, as they understand that they are beneficial to themselves and the business.

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