For the buyer’s security, the seller’s top workers often sign a non-competition agreement. During a defined period, the vendor is prohibited from competing directly or indirectly with the buyer.
Starting another business, having an investment in, consulting, or providing guidance to an individual or firm in a comparable business are all examples of competition. Non-competition agreements often last five to seven years and cover a specific geographic area, allowing the seller to continue in a similar business as long as it is not in the buyer’s territory.
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How a Non-compete Agreement Works
In general, non-compete agreements should be fair and reasonable to all parties. To be considered enforceable, they must include the following information:
An effective date on which the agreement will begin
A reason for enacting the agreement
Specific dates during which the employee will be barred from working in a competitive sense and the location covered by the agreement
Details as to how the non-competing party will be compensated for agreeing to the terms
What to add in a Non-Compete Agreement?
Duration- An employer can only set realistic timeframes and may not permanently prevent an employee from furthering their careers.
Scope- The employer must indicate the specific work or activities that they are restricting the employee from doing. This prevents ambiguities when it comes to implementing the clause, and it helps the employee clearly know what they can and cannot do to avoid getting on the wrong side of the law.
Geography- The geography covers the local area or region where the company does business, and where the employee should not establish a direct or indirectly competing business.
Compensation- The non-compete agreement should specify the type of compensation that the employer should receive if the employee violates the agreement.
Competition- Where the non-compete agreement blocks an employee from working with certain competitors, the agreement must define the type of businesses or industries that compete with the employer.
Why have a Non-Compete Agreement?
Protects a company’s trade secrets
May reduce cost on Employees
Non-compete agreements can also help you retain good employees
Employees under a non-compete agreement might be less likely to leave or more likely to stay for a longer period of time.
What are the Cons of Non-Compete Agreement?
Can reduce a worker’s bargaining power
May cause a worker to leave a field entirely, taking their expertise with them
Can be expensive to enforce
Some employees may not want to be limited or feel restricted by such agreements.
In India, any trade constraint covenant is presumed to be void, and may only be enforced if it can be justified as reasonable in the circumstances, taking into account both the public interest and the parties’ interests.
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