Noncompetition agreements: What every business owner should know

Small business owners may want to consider adding a noncompete agreement to their new hire packet in order to protect their company.

When starting a new company in Georgia, there are a host of considerations that small business owners should make. Owners may want to look at the competition in their industry and decide whether there is a risk when it comes to losing inside information. In some cases, small business owners may want to sign noncompete agreements in order to protect this information from potential competitors.

What is a noncompete agreement?

When a company hires a new employee, the company makes an investment in the employee's training, by showing them how to use specialized equipment, teaching them trade secrets or helping them to develop a certain skill set. Once employees have that training and information, the company will want to make sure that those workers will not take their training and use it to work for and benefit a competing company. A noncompete agreement is a legally binding contract that an employee signs saying that he or she will not work for a competing company within a certain time period after leaving the company.

Depending on the nature of the business and what type of information the company wants to protect, the agreement may contain special terms that limit the employee's ability to share certain information with other companies. It may also include terms that restrict the worker from recruiting other employees or taking the company's clients if he or she should start a new business of their own.

Noncompete controversy

Some people believe that noncompete documents act in favor of small businesses and protect companies from sharing information that may cause them to lose money. In some studies, these agreements have been found to increase the amount of money a company invests in employee training. Other people argue that noncompete agreements actually hinder the industry's development. Opponents of noncompetes believe that when companies require employees to sign these agreements, original ideas and growth is stifled, as people are not able to start new companies based upon ideas or decisions made while they were working for another company.

As a result, several states in the nation have enacted legislation banning the use of noncompete agreements in certain industries. In one cases, a Chicago attorney ruled in favor of an employee, the defendant, who was being sued by a company accusing him of stealing company clients and employees to open a new business. The court ruled that the terms of noncompete agreement were unreasonable.

Getting started

Whether you need to draft a noncompete agreement or you simply need legal help in getting your small business off the ground, you may want to seek counsel from an experienced attorney in Georgia. You'll want to make sure that you have completed all of the right procedures to make your company compliant with all state and federal laws.