Why Small Business Owners Should Use Non-Compete Agreements

Small business owners are many times reluctant to use employee non-compete agreements because they have to few employees and do not want to pay an attorney to draft the required legal documents.  The term non-compete agreement refers to a restrictive  legal document that prevents a former employee from engaging in certain business acts for a prescribed period of time in a specific geographic area.

The reasons small business owners should consider  the use of non-compete agreements are as follows:

1. Protect The Value of The Business :

When a buyer considers purchasing a business , he or she wants to be confident that key employees with access to customer relationships  will not leave and  be able to take customers to a new employer.  A valid non-compete agreement signed by key employees can minimize the chance of this happening and preserve business value.

2. Deter Competitors From Hiring Key Employees :

Training employees is a worthwhile expense and may help attract talented employees and a non-compete agreement can place competitors on notice  that you are ready to protect your investment in the training of employees along with the customer relationships these employees have made during the time they have worked for your company.Courts commonly have recognized that employees have a legitimate interest in protecting their investment in specialized training.

3.Enhance Client Relationships :

When clients entrust their personal  and business information to your business they have a reasonable expectation that your employees will not share this information with another business should a key employee leave  your employment. Requiring key employees to  sign a non-compete agreement is one way to prevent former employees from the sharing of confidential information about your customers with their new employers  and gives current customers confidence that their information will remain safe.

4.Limit the Cost of Potential Litigation:

While no signed non-compete agreement can eliminate  costs associated  with legal action against a former key employee, careful crafting of this document can help minimize legal costs. Signed  employee non-compete agreements are a great opportunity to reach agreements with key employees about the circumstances that will apply if litigation becomes necessary such as recovery of legal fees if you prevail in a court action against your former employee.

As you can see there are significant advantages for small business owners to consider the use of non-compete agreements for their key employees.Remember Ben Franklin once said an ounce of prevention is worth a pound of cure!