Non-Compete Agreement with Employee

A Non-Compete Agreement is a useful document which many businesses use with their employees or other individuals with access to their sensitive business information. The business may use the Non-Compete Agreement to prevent the employee from soliciting the business's clients, recruiting the business's staff, or using the business's sensitive information to open a competing business. Non-Compete Agreements are used most often in highly competitive industries, such as technology development, sales, and marketing.

For example, a Non-Compete Agreement might be used when an employee is being hired to work at a company and the company wants to ensure that if the employee leaves, they do not use their access to business secrets to start a competing company.

Many standard contracts do include clauses dealing with competition and restraint of trade. For example, these sorts of clauses are included in our Employment Agreement, our Remote Work Agreement, and our Business Sale Agreement. However, this Non-Compete Agreement goes into more detail than those standard contracts do. It also helps to make it clear that the business takes these issues very seriously. Therefore, even if a business has a standard contract that deals with competition and restraint of trade, they often choose to also use a Non-Compete Agreement. At the same time that they are preparing this Non-Compete Agreement, many businesses also like to use a Confidentiality Agreement. To understand the differences between these two documents, see our legal guide What's the Difference Between a Non-Compete Agreement and a Non-Disclosure Agreement?

This Non-Compete Agreement is specifically designed for use in employment matters. We also have a general Non-Compete Agreement which may be used in other matters.

How to use this document

This Agreement outlines the duration of the non-competition, the geographic location where the non-competing party must avoid competition, and the covered subjects, industries, and activities that the non-competing party must not engage in while the Agreement is in force.

The Non-Compete Agreement contains the following essential elements:

• Parties involved -- The names and addresses of both the non-competing party (the party being asked to not compete) and the protected party (the party asking that competition not occur).
• Duration of Agreement -- The period of time during which the non-competing party must not compete with the protected party. To be enforceable, this time period must be reasonable given each of the party's business interests. Courts are generally hesitant to limit a non-competing party's access to economic activity, so the shorter the time period, the more likely it will be enforced in court.
• Geographic range of Agreement -- The geographic area in which the non-competing party is prohibited from engaging in competition with the protected party. To be enforceable, this geographic area must be limited to the area where the protected party operates and has its market. The geographic area must be as narrow as possible to reasonably meet the goals of shielding the protected party from competition.
• Specific activities and subjects included in non-competition -- A thorough description of the activities and industries the non-competing party must not engage in under this Agreement. The prohibited activities should be limited to those that are essential to the protected party's business practices.
• Compensation -- Form and/or amount of compensation the non-competing party will receive in exchange for entering into the Agreement. To be enforceable, the non-competing party must receive some form of compensation, also known as consideration, in exchange for entering into the Agreement. This compensation can range from a job offer to monetary compensation to a promotion to an alternative form of compensation such as stock options.

This Agreement also offers optional clauses that would prohibit the non-competing party from behaviour such as soliciting the protected party's customers and clients or inducing current employees of the protected party to leave their jobs and come work for the non-competing party.

As with all other parts of the non-competition, non-compete agreements are not always enforceable under Australian law. A restraint will only be enforceable if it imposes no more restrictions than are necessary for the protection of the other party's legitimate business interests. Therefore, these clauses must be limited in time and scope so as to be enforceable as reasonable by a court of law in case of dispute.

Applicable law

Non-Compete Agreements are subject to the common law doctrine of restraint of trade.

This means that the agreement must be directed at protecting specific interests of the employer (such as trade secrets or business goodwill). The courts will not uphold a restraint clause that restricts competition per se, or unduly interferes with an employee's right to sell his or her own labour.

Importantly, when this document is being used with an employee, it should be remembered that post-employment restraints are presumed to be invalid and unenforceable. It is up to the employer to prove that the restraint is necessary to protect a legitimate business interest.

How to modify the template

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