Key Considerations for Drafting an Enforceable Non-Compete Agreement
May 8, 2025
In today’s competitive business environment, protecting valuable intellectual property, trade secrets, and business interests is a top priority. One essential tool that businesses use to safeguard these assets is a non-compete agreement.
At McCarter | East PLLC, we understand business law issues and the importance of crafting non-compete agreements that are not only legally sound but also enforceable. While these agreements can help prevent employees from taking sensitive knowledge to a competitor, there are key considerations to keep in mind when drafting them.
A well-drafted non-compete agreement can prevent future legal disputes and confirm the ongoing protection of your business.
What Makes a Non-Compete Agreement Enforceable?
When considering business law, one of the first questions many employers ask is, “What makes a non-compete agreement enforceable?” For a non-compete agreement to be legally binding, it must meet certain legal standards. Without these standards in place, a court may rule the agreement void, leaving your business unprotected.
Here are some of the main elements that make a non-compete agreement enforceable:
Reasonableness of restrictions: The agreement must contain reasonable restrictions in terms of geography, duration, and the nature of the work the employee is prohibited from doing. If these terms are too broad or vague, a court may find the agreement unenforceable.
Legitimate business interests: Non-compete agreements must protect a legitimate business interest, such as trade secrets, proprietary information, or customer relationships. Without a demonstrated need for protection, a non-compete agreement may fail.
Consideration: For any contract to be valid, there must be an offer, acceptance, and consideration (something of value exchanged). In the case of non-compete agreements, consideration may be the offer of employment, a promotion, or access to valuable company information.
Lack of undue hardship: A non-compete agreement shouldn’t impose an undue hardship on the employee, restricting their ability to earn a living or find suitable employment. If the terms of the agreement are overly burdensome, a court may deem the agreement unenforceable.
Tailoring the Agreement to Your Business Needs
To create an enforceable non-compete agreement, it’s important to customize it to meet your specific business needs. Consider the following factors when drafting:
Type of business: The industry you operate in will influence the scope of the non-compete agreement. For example, in industries where proprietary information and trade secrets are key assets, stricter restrictions might be warranted.
Role of the employee: The type of work the employee does will also affect the enforceability of the non-compete. For example, a non-compete agreement for a high-level executive with access to sensitive business information will likely differ from one for a lower-level employee with limited exposure to confidential data.
Geographic scope: The geographic limitations of the non-compete should be tied to the areas in which your business operates. A restriction that’s too broad—say, applying to the entire state or country—could be seen as excessive and unreasonable. Make sure the geography outlined in the agreement is directly relevant to the scope of your business.
Duration of restrictions: The timeframe for the non-compete agreement should be reasonable. Courts often look at the duration of the restriction to assure that it isn’t unnecessarily long. A restriction lasting one or two years is typically considered reasonable, but longer durations might face legal challenges.
What Should Be Included in the Non-Compete Agreement?
When drafting a non-compete agreement, it’s essential to include specific elements that help protect your business while remaining fair to the employee. Here are key components that should be included in every non-compete agreement:
Clear definitions of restricted activities: Be explicit about the activities the employee is prohibited from engaging in. This includes identifying specific competitors, job functions, or geographic areas where the restrictions apply.
Consideration details: Specify what the employee is receiving in return for agreeing to the non-compete. This could be access to valuable company resources, specialized training, or other benefits.
Duration and geographic limitations: Clearly state the duration of the non-compete restriction and define the geographic area to which it applies. Avoid overly broad language that could lead to enforceability issues.
Consequences of breach: Outline the consequences of violating the non-compete agreement. This may include financial penalties or legal action to enforce the terms of the contract.
Dispute resolution provisions: Include a clause specifying how disputes will be resolved. This can include mediation, arbitration, or the jurisdiction in which legal action will be taken.
Confidentiality provisions: In addition to non-compete clauses, confidentiality provisions protect the business from the unauthorized disclosure of proprietary information.
Common Pitfalls to Avoid When Drafting Non-Compete Agreements
There are several common mistakes businesses make when drafting non-compete agreements, and avoiding these can help assure the enforceability of the agreement:
Overly broad language: One of the most significant pitfalls is using overly broad or vague language in a non-compete agreement. If the restrictions are not clear or reasonable, the agreement may not be enforceable. Be specific about the activities that are restricted, the geographic area covered, and the duration of the restriction.
Failing to consider state laws: Different states have varying laws governing non-compete agreements. Some states, like California, have a strong public policy against non-compete clauses, while others may enforce them under specific circumstances. It’s essential to understand the business law in your jurisdiction to confirm the non-compete agreement is legally valid.
Not updating agreements for changes in business operations: As businesses grow or change, it’s essential to revisit and revise non-compete agreements to make sure they continue to meet the needs of the business. Regular reviews and updates are crucial to maintaining enforceability.
Excessive restrictions: Non-compete agreements that are too restrictive, either in terms of time or geography, can be challenged in court. Restricting an employee for an excessively long period or across a large geographic region may be deemed unreasonable.
Failing to provide adequate consideration: If the employee is not receiving something of value in exchange for agreeing to the non-compete, the agreement may be invalid. Make sure that adequate consideration is offered, such as a promotion or additional benefits.
The Importance of Legal Review and Customization
Given the significant consequences of an unenforceable non-compete agreement, it’s crucial to seek legal advice during the drafting process. A business law lawyer can review the non-compete agreement to confirm it aligns with state laws and industry practices.
A legal professional can also help tailor the agreement to your business’s specific needs, assuring the terms are reasonable and enforceable.
Furthermore, a legal review can help prevent common mistakes, such as using overly broad language or failing to consider changing business circumstances. By working with an attorney, you can avoid costly litigation and protect your business interests effectively.
Enforceability of Non-Compete Agreements: What Employers Need to Know
Once a non-compete agreement has been drafted and signed, employers must be prepared to enforce the terms if necessary. However, enforcement can be complicated, as many courts are hesitant to restrict an employee’s right to earn a living. Understanding the business law legal standards for enforcement can help employers make informed decisions about how to proceed.
Documentation of breaches: To enforce a non-compete agreement, employers must gather documentation of the breach, such as evidence that the employee has joined a competing business or disclosed confidential information.
Timing of enforcement: If an employee violates the non-compete agreement, employers should act quickly. Delayed enforcement may weaken the case for enforcement, especially if the employee has already established a position with a competitor.
Proportional enforcement: Employers must confirm that enforcement measures are proportionate to the breach. For example, if the employee violated only a limited portion of the agreement, the employer may only seek limited remedies.
Contact Us Today
If you’re looking to draft a non-compete agreement that’s enforceable and tailored to your business needs, McCarter | East PLLC can help.
Our firm understands the intricacies of business law and is ready to guide you through the process of creating legally sound agreements that protect your interests. Conveniently located a few blocks from the courthouse, we serve businesses in Murfreesboro, Tennessee, and surrounding areas. Don’t leave your business vulnerable—contact us today to schedule a consultation.