How to Use ‘Non-Compete’ Clauses

Contracts, Employment, Employment Law

Considering a non-compete clause for your business? It can be a smart move to protect against former employees competing with your company. Yet, it is essential to understand that not all non-compete clauses fit every situation or industry. This article will delve into the details of how to effectively implement a non-compete clause in your contracts.

 

What Is a ‘Non-Compete’ Clause? 

A non-compete clause, also known as a ‘non-competition’ clause, is a contractual provision that prohibits an employee from starting a competing business within a specified timeframe. It also acts to prevent a former employee from using private information, company ideas, and general knowledge to compete against their former employer. This clause is typically included in an employment agreement and is agreed upon by the employee prior to commencing their work at your company. 

 

Why Do Employers Include Non-Compete Clauses in Contracts? 

Employers use non-compete clauses to protect their business interests, including proprietary information, client relationships, and trade secrets.  

 

 Is a Non-Compete Clause Legally Binding? 

When reviewing a non-compete clause, a court must assess its reasonableness to determine if it can be enforced. The court typically considers three key factors:

  • The geographic scope covered by the non-compete clause; 
  • The specific activities that the clause aims to restrain; and 
  • The period for which the clause remains in effect. 

The court will weigh these factors against the business interests of the party seeking to enforce the clause. It is important to note that the party seeking to enforce a non-compete clause must have a legitimate business interest worth protecting.

 

Can Non-Compete Clauses Be Negotiated or Modified? 

Non-compete clauses may be able to be negotiated. This will require open communication with your employer regarding the terms of the agreement to limit the scope. For example, you may be able to modify the geographic scope or duration of the agreement. 

 

 Key takeaways  

  • To ensure compliance, reach out to a legal professional before implementing this clause.
  • Businesses use non-compete clauses to protect legitimate business interests.
  • Employers can implement non-compete clauses in employment contracts.

 

  

 

Gladwin Legal are experts in Employment Law and have extensive experience in advising businesses. If you require assistance in understanding your legal obligations please contact us at or 1300 033 934.