General Purpose. A noncompete agreement is generally used in two settings: (a) as part of an employment agreement and (b) as a side agreement to the sale of a business. As the name implies, generally a "noncompete agreement" is one where a second party agrees not to compete with the first party for a fixed period of time. There are shades of prohibited activity under the umbrella of "noncompetition" and our form attempts to cover all three: (1) solicitation of business from current or past customers of the first party, (2) prohibition against even engaging in business within the same product lines and business territories in which the first party operates (i.e., covers future potential customers of first party), and (3) solicitation of employees of the first party to work for a competing business enterprise.

You should be aware that the courts do not look favorably upon noncompetition agreements as they run against the grain of our American notion of free enterprise. However, if the contract is drawn tightly and is not overly burdensome upon the employee or the other party to the agreement, the courts of a majority of states will enforce the contract. This is why our form limits your choices for the length of noncompetition to two years. Court have enforced contracts for longer periods; however, the shorter the time period, the better your chance for enforcement.

Note: If you wish your worker to have "independent contractor" status for tax purposes so that you are not liable for employment tax withholding and social security taxes, it is probably not wise to include a non-competition clause in the agreement. This increases the control you have over the contractor in the eyes of the IRS. Please consult with your tax accountant or attorney to make sure your it is "OK" for you to enter into a noncompetition agreement with your independent contractor before doing so.

Injunctive relief. Our contract form, as should any quality noncompete agreement, provides that the parties agree that there will be "irreparable harm" to the other side in case of breach and, further, that injunctive relief would be available in such a case. One of the restrictions upon obtaining a court injunction (i.e., a court order telling the offending party to refrain from prohibited competition with the first party) is that there be "irreparable harm". This can be a hard burden to fulfill as money damages are usually deemed an adequate remedy in most cases. By having a written agreement that, in advance, has the parties agreed that irreparable harm would exist in case of breach, one has put a substantial tool in the hands of the injured party in case of prohibited competition.

Links to additional information relative to noncompete agreements:

Employee Noncompete agreements by SmartAgreements.com; and

Noncompete Agreements by Lycos Small Business.