A non compete agreement (NCA) is used to safeguard a business’s competitive interests. This document is used by a business when it has a unique product or service and would like to block its current employees or other associates like clients or partners from starting a similar business (usually within a certain radius like 10 miles or certain time frame) and stealing their clients.
If you are unsure of how to handle a situation or you want to customize your own non compete agreement, check out Rocket Lawyer. It is an online legal service provider that offers custom documents and additional legal assistance if needed. Plans start at $39.99 a month, and it offers a 7-day free trial.
Free Non Compete Agreement Template
Let’s start with our free non compete agreement template. However, you might want to quickly check our table on states that exclude non compete agreements. Please note that this article contains general information only, so you should consult your own legal professional before making any decisions on NCA contracts.
Below is a free non compete agreement template from Docracy. Click here to download it as a PDF. Remember, you can get in touch with legal experts at Rocket Lawyer to customize this for your own business.
THIS NON-COMPETITION AGREEMENT (this “Agreement”) is made as of [EFFECTIVE DATE] (the “Effective Date”) by and between [COMPANY FULL NAME], with its principal place of business at [COMPANY ADDRESS] (“[COMPANY NAME]“) and [PARTY FULL NAME], with its principal place of [PARTY BUSINESS OR RESIDENCE] at [PARTY ADDRESS] (“[PARTY NAME]“), (sometimes collectively referred to as the “Parties”).
- Definitions
- 1.1 Restricted Business. The “Restricted Business” shall mean any activity that relates to [RESTRICTED BUSINESS].
- 1.2 Restricted Territory. The “Restricted Territory” shall mean [RESTRICTED TERRITORY].
- 1.3 Restricted Period. The “Restricted Period” shall mean the period starting on the [START DATE] and ending [RESTRICTED TERM] after such date.
- Consideration. [PARTY NAME] expressly acknowledges that the covenants of this Agreement are supported by good and adequate consideration.
- Non-Competition
- 3.1 Restrictions. During the Restricted Period and within the Restricted Territory, [PARTY NAME] shall not, directly or indirectly, without the prior written consent of [COMPANY NAME], own, manage, operate, join, control, finance or participate in the ownership, management, operation, control or financing of, or be connected as an officer, director, employee, partner, principal, agent, representative, or consultant of any entity engaged in the Restricted Business.
- 3.2 Exceptions. It is not a breach of this Agreement for [PARTY NAME] to participate as a passive investor holding up to [PASSIVE INVESTMENT PERCENT] of the equity securities of an entity engaged in the RestrictedBusiness[, which securities are publicly traded].
- Non-Solicitation. [PARTY NAME] shall not directly or indirectly induce or attempt to induce any of the employees of [COMPANY NAME] to leave the employ of [COMPANY NAME], or solicit the business of any client, customer, [or any consultant] of [COMPANY NAME].
- Non-Disclosure
- 5.1 Confidential Information. “Confidential Information” shall include all [non-public] [business-related] information, written or oral, disclosed or made available to [PARTY NAME], [directly or indirectly,] through any means of communication [or observation] by [[COMPANY NAME] [or any of its affiliates or representatives] to [or for the benefit of] [PARTY NAME].
- 5.2 Confidentiality. [PARTY NAME] agrees to hold the Confidential Information in strict confidence.
- 5.3 Non-Disclosure. [PARTY NAME] shall not (i) disclose any Confidential Information to any person[, except in the performance of [PARTY NAME]‘s obligations under the [Employment/Purchase] Agreement] or (ii) use any Confidential Information for the benefit of any person other than [COMPANY NAME].
- 5.4 Return of Property. At [COMPANY NAME]‘s request, all Confidential Information in the possession of the [PARTY NAME] shall be [promptly | immediately] returned to [COMPANY NAME] or destroyed.
- Acknowledgements. [PARTY NAME] acknowledges that the restrictions, prohibitions and other provisions of this Agreement, including the Restricted Area and Restricted Period, are reasonable, fair and equitable in scope, terms and duration, are necessary to protect the legitimate business interests of [COMPANY NAME], and are a material inducement to [COMPANY NAME] to enter into this Agreement.
- Representations and Warranties
- 7.1 Authority. [PARTY NAME][Each party] warrants that it has the authority to enter into this Agreement for itself and its corporate affiliates and subsidiaries.
- 7.2 No Conflict. [PARTY NAME][Each party] that the execution and delivery of this Non-Competition Agreement nor the performance of this Non-Competition Agreement will result directly or indirectly in a violation or breach of: (i) any agreement or obligation [PARTY NAME] [each party] is or may be bound; or (ii) any law, rule or regulation.
- Remedies. Any [INJUNCTIVE STANDARD] of this Agreement may result in irreparable damage to [COMPANY NAME] for which [COMPANY NAME] will not have an adequate remedy at law. Accordingly, in addition to any other remedies and damages available, [PARTY NAME] acknowledges and agrees that [COMPANY NAME] may immediately seek enforcement of this Agreement by means of specific performance or injunction, without any requirement to post a bond or other security.
- General Provisions
- 9.1 Entire Agreement. This Agreement constitutes the entire agreement among the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral and written, between the parties with respect to such subject matter.
- 9.2 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together will constitute one and the same instrument.
- 9.3 Further Assurances. The parties shall execute and/or cause to be delivered to each other such instruments and other documents, and shall take such other actions, as each party may reasonably request at any time for the purpose of carrying our or evidencing any of the provisions of this Agreement.
- 9.4 Amendments. This Agreement may not be modified, amended, altered or supplemented except by the execution and delivery of a written agreement executed by the parties hereto.
- 9.5 Waiver. The waiver of a breach of any provision of this Non-Competition Agreement shall not operate as or be construed as a waiver of any subsequent breach of this Non-Competition Agreement.
- 9.6 Notices. All notices, demands, requests or other communications given under this Agreement shall be in writing and be given by personal delivery, certified mail, return receipt requested, or nationally recognized overnight courier service to the address set forth below or as may subsequently in writing be requested.
If to [COMPANY FULL NAME]:
[COMPANY ADDRESS]
Attention: [COMPANY CONTACT NAME]
If to [PARTY NAME]:
[PARTY ADDRESS]
Attention: [PARTY CONTACT NAME]
- 9.7 Assignment. Neither Party may delegate its obligations or assign its rights to another person or entity without the prior written consent of the other Party.
- 9.8 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of [GOVERNING LAW STATE].
- 9.9 Consent to Jurisdiction. Each party hereto hereby irrevocably submits to the exclusive venue in state or federal court in [VENUE] for the purposes of any suit, action or proceeding arising out of or relating to this Agreement, and hereby waives, and agrees not to assert in any such suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of such court, that the suit, action or proceeding is brought in an inconvenient forum or that the venue of the suit, action or proceeding is improper.
- 9.10 Waiver of Jury Trial.Each party irrevocably and unconditionally waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this agreement, any other related document or the transactions contemplated hereby or thereby.
- 9.11 Severability. If, for any reason, any provision of this Agreement, or any part of any provision, is held invalid, such invalidity shall not affect any other provision of this Agreement or any part of such provision not held so invalid, and each such other provision and part thereof shall to the full extent consistent with law continue in full force and effect.
- 9.12 Attorney Fees. If any party to this Agreement brings an action to enforce its rights under this Agreement, the prevailing party shall be entitled to recover its costs and expenses, including without limitation, reasonable attorney fees, incurred in connection with such action, including any appeal of such action.
IN WITNESS WHEREOF, the Parties have each executed and delivered this Agreement as of the Effective Date.
[COMPANY FULL NAME]
By:
(Name)___________________________________________
(Title)__________________________________________
(Date)___________________________________________
[PARTY FULL NAME]
(Name)___________________________________________
(Title)__________________________________________
(Date)___________________________________________
Why You Might Need A Non Compete Agreement
You might still be wondering if an NCA is needed at your business. We get it— paperwork and asking for signatures from employees can sound intimidating. So, to make things easier, we provide a set of questions to determine whether or not you need an NCA.
If you answer any of the following questions with a “yes,” you should consider having an NCA signed by all of your employees:
- Do you run a client or customer-based business?
- Do you worry that your employees will try to open a similar business?
- Do you worry that your employees may be trying to see your clients on the side or telling them they would charge them less?
- Do a lot of your employees have their own businesses on the side?
In general, having a non compete agreement is becoming more common as competition for customers increases and as the entrepreneurial spirit of young employees becomes stronger. It is considered fairly attractive right now to “start your own thing”, which has made NCAs more common. If you feel it in your gut, then you should probably have an NCA.
Common Company Situations & NCAs
| Company Situation | Do They Need an NCA? | The Reason(s) |
|---|---|---|
| Boutique marketing firm | Maybe | This is a “maybe” situation because your team members will most likely have a marketing background and will go to another marketing firm after they work for you. This is what is termed the “right to make a living” in many states that oppose non compete agreements. You might want a non disclosure agreement for your marketing methods instead. However, if you worry about someone opening a competing firm down the street, you might look into a non competition agreement. |
| Fitness studio | Yes | You will want to make sure that your staff doesn’t solicit clients to become “private clients” of theirs, such as personal training them in their home versus in your gym for a cheaper rate. |
| Startup who just got funding | Yes | This is essential to protect yourselves as a start up. You also may want to look into an Invention Patent. |
States that Do Not Recognize Non Compete Agreements
The NCA is a hotly contested agreement and various states have chosen to take matters into their own hands. We focus below on the states where NCAs are not generally upheld in the same way they are in other states, but we advise you to consult your attorney in your respective location.
You could also use Rocket Lawyer to consult with a professional who can guide you through your state’s NCA laws.
States that Do Not Uphold Non Compete Agreements Table
| State | What You Can Do Instead |
|---|---|
| California | California does not uphold non compete agreements, even in startups and technology. You could create an agreement that protects trade secrets, like an invention patent agreement, instead. |
| Florida | Non compete agreements may be enforced as they are reasonable with regard to time and geographical area, and protect a legitimate business interest. You should consult your Florida-based attorney. |
| Hawaii | Their law pertains specifically to the technology sector: If you have a technology company, or a company like a social media firm that uses primarily technology, you will most likely need an invention patent or not be able to enforce a noncompete. |
| Illinois | Illinois law states that, if an employer requires a non compete from someone of low income, such as $13/hour or less, it is not valid. |
| Massachusetts | Massachusetts, at the time of print, was still working on their non compete agreement laws. It appears that they will not uphold for certain types of employees or industries; you will want to speak to your attorney. |
| Texas | While Texas courts generally do not enforce non competes, they will enforce one if it is executed with reasonable geographic, temporal, and activity restrictions. You should consult your Texas-based attorney. |
| Virginia | In Virginia, non-compete agreements are enforceable only if they are narrowly drawn to protect the employer's legitimate business interests, are not overly restrictive on the employee's ability to make a living. You should consult your Virginia-based attorney. |
| Washington | Though non compete agreements are valid in Washington, they have a long history of not being upheld in court and the law continues to be in flux. You should consult with your Washington state-based attorney. |
What a Non Compete Agreement Should Specify
An NCA should include the following information:
1. The duration or effective dates
You need to be completely clear about when the NCA starts, when it ends, and the exact duration of its validity. Most agreements hover around 1 year, depending on their location. Some can go up to 2, 3, or even 5 years.
2. The interpretation of what is competition
Define what would be construed as competition and provide examples in an addendum. You will want to think about if working for a competitor, opening their own similar business, or working for a client in your current book of business is considered competing (and why).
3. The radius of the non compete area
Most non compete agreements care mostly about the local environment, unless you are a startup with huge funding, an online business, or if you are a global company, like the healthcare giants. Usually a 1, 3, 5 or even 10 mile radius is plenty for a non compete agreement; however, your situation might require more or less.
Non Compete Agreements vs Non Disclosure or Confidentiality Agreements
Like a non compete, a non disclosure agreement (NDA) is a legally binding contract meant to protect a business owner. The NDA is focused on information like trade secrets or product inventions, and the NCA is focused on an individual or company who would open a similar business, steal clients, or go work for a competitor. There can be overlap though; let’s look at some examples.
NDA vs NCA Example Scenarios
Scenario 1: Linda is a marketing manager at XYZ Social Media.
Linda takes a job at ABC Social Media Marketing in the same city at XYZ. Linda shares with them their Facebook strategy, as well as a list of the clients she was working on at XYZ.
Answer: Both NCA and NDA. Linda is revealing information, as well as trying to solicit clients.
Scenario 2: Marty is an HVAC repairman.
Marty gets tired of working for Heater HVAC and goes to work for Cooler HVAC. He teaches his entire new crew his method of repairing a clogged drain line after his boss notices how fast it is.
Answer: Neither. Marty is in a skilled trade and his knowledge is from experience.
Scenario 3: Joe is a business consultant for BusinessBee Consulting.
Joe switches to the CompetitorC Consulting Firm, which is a firm across the country from BusinessBee. He moves his family and wishes his old firm well. Joe calls his favorite client from BusinessBee and tells him about his move and job change. The favorite client asks if Joe can still be his consultant and insists on moving to CompetitorC.
Answer: NCA. Joe called the client directly, which could be interpreted as solicitation, and then did not stop the client from becoming a client of CompetitorC. If he had signed an NCA, he would be in hot water with BusinessBee.
The Bottom Line
A non compete agreement can be helpful to your business, especially at the management level, depending on your industry and location. Only you, your HR professional, and your attorney will know best if it makes sense for your business needs. We advise looking into it to be certain. If you are still unsure, check out Rocket Lawyer. They will match you up with a dedicated attorney to answer your questions and plans start at only $39.99 a month.
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