We’re fluent in startup finance. Now you can be too.

Learn more about common financial (and startup) terms here. To learn more about Pilot, fill out the form below.

Oops! Something went wrong while submitting the form.
Non-Compete Agreement

What is a Non-Compete Agreement?

A non-compete agreement is a legal contract that prevents an employee from entering into competition with their employer or revealing proprietary information after their employment period ends. This type of agreement is designed to protect the employer's intellectual property, trade secrets, and competitive advantage.

Key Components of a Non-Compete

Non-compete agreements typically include several important components:

  • Duration: The time period during which the employee is restricted from competing, usually ranging from six months to two years.
  • Geographic scope: The specific area or region where the employee is prohibited from working for or starting a competing business.
  • Scope of work: The particular activities or tasks the employee is restricted from performing in a competing business.
  • Defined competitors: The types of businesses or industries considered to be in competition with the employer.

Enforceability of Non-Compete Agreements

Enforceability of non-compete agreements varies by jurisdiction and depends on factors such as reasonableness, fairness, and specificity. Some states, like California, refuse to enforce non-compete agreements, while others may enforce them under certain conditions. Courts evaluate the reasonableness of non-compete agreements based on factors like potential harm to the employer, specified time period, prohibited territory, impact on the employee, and interests of the general public.

Advantages and Disadvantages of Non-Compete Agreements

Non-compete agreements offer both advantages and disadvantages for employers and employees. On one hand, they protect trade secrets, inspire innovation, match employers with long-term employees, and reduce turnover. However, they also weaken employee bargaining power, impose significant wait times before applying for another job in the same field, offer limited social benefits, and can restrict employees without trade secrets.

Negotiating Non-Compete Clauses

When negotiating non-compete clauses, it's important to carefully review the terms and consider the potential impact on your future job prospects. Don't immediately sign the agreement; instead, ask for a copy to review and take time to understand your rights. Approach negotiations with an informed and reasonable mindset, aiming to tailor the contract to better suit your needs.

Consider alternatives to non-compete agreements, such as non-solicitation agreements, which prevent poaching customers or employees, and confidentiality agreements (also known as non-disclosure agreements), which prohibit the use or disclosure of confidential information. Exploring these alternatives may lead to a more favorable outcome for both parties involved.

Need help with other finance or startup questions?

Pilot provides bookkeeping, CFO, and tax services for literally thousands of startups and growing businesses. We've successfully processed over 10 million transactions for our customers and have unparalleled expertise when it comes to helping businesses succeed.

We're the largest startup-focused accounting firm in the United States, and we'd love to help you. To talk to an expert on our team and find out what Pilot can do for you, please click "Talk to an Expert" below, or email us at info@pilot.com.

See what Pilot can do for you

Get the peace of mind that comes from partnering with our experienced finance team.

Oops! Something went wrong while submitting the form.