What is a non-compete agreement?

A non-compete agreement is a contract that demands that an employee abstains from working at a competing organization for a specified amount of time.

Non-competes, or noncompetition agreements, are meant to keep employees from working in the same field at another company and sharing sensitive business information with their new employer. 

Organizations often use non-competes:

  • During a merger and acquisition (M&A)
  • For employees and independent contractors
  • To maintain a positive employer reputation

Why should HR leaders care about non-compete agreements?

A comprehensive understanding of the non-compete contract and its overall impact on the company helps HR leaders:

  • Decide if their company could benefit from the non-compete
  • Determine the essential details of the non-compete contract 
  • Protect sensitive company information
  • Enhance recruitment 
  • Improve employee retention 
  • Promote employer goodwill 

What can HR leaders do to implement non-compete agreements?

HR can incorporate these practices to build a non-compete contract that positively impacts the workforce: 

  • Get specific. Identifying the goals of the non-compete agreement can clarify if the contract is necessary and what to include in it. Determine which information the company is trying to protect, who is privy to it, and the company policy regarding relationships with business clients. Know why the company has a non-compete and for whom it’s designed. 
  • Adhere to government laws. The U.S. and U.K governments are exploring how to adjust non-competes to promote economic growth. Moreover, while the federal government is aiming to limit the use of non-competes, California, North Dakota, Oklahoma, and Washington, D.C. already prohibit employers from using non-compete agreements. Thus, HR leaders should maintain a sharp awareness of any government-mandated non-compete reforms.
  • Weigh the pros and cons. It’s crucial to protect sensitive company information, yet non-compete agreements can limit employee flexibility. From a recruitment perspective, eliminating non-competes may help attract talent because the candidates know they won’t be limited to staying at the company. Moreover, non-competes decrease the talent pool— there are fewer people to choose from if a previous employer required their employees to sign a non-compete. 
  • Consider the options. Rather than providing a standard non-compete contract, HR can tailor the agreement to fit the company’s unique situation. Perhaps only higher-tier employees should sign noncompetes, or an employment specialist should draft a less restrictive contract. Another option is to implement confidentiality or non-solicitation agreements; these hold employees accountable for protecting company secrets and not hijacking business clients or coworkers for competitors. 
  • Create a transparent non-compete policy. Hire an employment attorney to draft or review the non-compete contract. Transparent company policies can contribute to a positive employee-employer relationship and avoid discrimination and lawsuits. 

How can non-compete contracts impact the company culture?

Every agreement new hires must sign affects the type of talent attracted, the employee-employer relationship, and the employee experience. By carefully analyzing the pros and cons of the non-compete contract and drafting a customized one when necessary, HR can contribute to building a thriving community of individuals who feel comfortable, valued, and appreciated.