A non-compete agreement is an agreement of an employer with its employee that clearly lays down conditions and terms pertaining to the employee’s intention to work in a competing firm after his/her employment is terminated from the current organisation.
Generally, the agreement forbids the employee to work in rival company from the same industry for a period that may range from 6 months to 2 years. The basic purpose of such an agreement is to avoid instances of an ex-employee sharing trade secrets or exploiting the knowledge, resources or contacts that he has gained by virtue of his employment in the previous organisation.
A non-compete agreement is considered as a best practice in HRM as it protects the interests of both the employee and the employer. It benefits the employer as it prohibits a former employee from sharing strategic plans and confidential information with its competitors, which can be a rampant problem in today’s scenario wherein phenomenon like poaching and moonlighting have become quite common. Often, employees also benefit indirectly from agreeing to abide by a non-contract agreement in the form of a job, raise or a promotion.
In addition to the basic premise of the agreement, it may also cover additional clauses like prohibiting an ex-employee to start his own enterprise as a competitor and employ people from the same organisation. Likewise, it also keeps the former employee from using sales leads or clients and customers of the employer he has gained during his job. Infrequently, it also prevents an ex-employee to look for employment in a particular part of the country. However, a non-compete agreement is no fail-proof mechanism to prevent the unauthorised use of information or resources, as it is bound by conditions like time period and location.
For example, an organisation may prevent a salesperson from working in a competing firm for 18 months, considering it as a safe period for rendering the gained leads useless.
The legal enforcement of a non-compete agreement varies from country to country. For example, Courts in Canada only enforce these agreements if they have a limited time frame, geographical restriction or relevant business necessity.