Valuing a Non-Competition Agreement: What You Need to Consider Before Signing

A non-competition agreement is a legal contract that prohibits an employee from joining or starting a competing business for a certain period of time after leaving their current employer. These agreements are becoming increasingly common in many industries, especially in those where employees have access to confidential information or trade secrets. However, they can be challenging to value, negotiate, and enforce. In this article, we’ll discuss some of the key considerations when valuing a non-competition agreement.

1. Understand the purpose and scope of the agreement

Before signing a non-competition agreement, it’s important to understand its purpose and scope. Employers typically use non-competition agreements to protect their intellectual property, customer base, and confidential information. The agreement may specify the types of businesses or industries that the employee is prohibited from working in, as well as the geographic area and duration of the restriction. It’s essential to review these terms carefully to ensure you understand what you’re agreeing to, and to negotiate any terms that you’re not comfortable with.

2. Consider the impact on your career and earnings potential

Non-competition agreements can have a significant impact on your career and earnings potential. If you’re restricted from working in your industry or with certain clients, it could limit your job opportunities or potential for promotion. You may also need to relocate if the agreement specifies a geographic restriction. Before signing a non-competition agreement, consider how it could affect your long-term career goals and whether the benefits of the job outweigh the restrictions.

3. Evaluate the enforceability of the agreement

Not all non-competition agreements are enforceable, and the specific laws and regulations governing their enforcement vary by state. In general, courts will only enforce non-competition agreements that are reasonable in scope, duration, and geographic area. If the agreement is too broad or restrictive, it may not hold up in court. It’s important to consult with a lawyer who is familiar with the state’s laws regarding non-competition agreements before signing.

4. Determine the value of the consideration

Non-competition agreements typically require the employee to receive some form of consideration in exchange for their agreement to the restriction. This consideration could come in the form of a signing bonus, stock options, or increased compensation. It’s important to carefully evaluate the value of the consideration being offered to ensure it’s fair and reasonable for the restriction being imposed. If the consideration is insufficient, it may be difficult to enforce the agreement or seek damages if the employer violates the terms.

In summary, valuing a non-competition agreement requires careful consideration of its purpose, scope, impact on your career and earnings potential, enforceability, and the value of the consideration being offered. It’s important to consult with a lawyer and negotiate any terms that you’re not comfortable with before signing the agreement. By taking these steps, you can protect your rights and ensure that you’re making an informed decision.