By Purple Fox Legal
December 22, 2021
There are multiple different ways to protect yourself as a business owner, and many of them come in the form of certain agreements. But, knowing the difference between these agreements and the right time to use them is vital. This article will address non-compete, non-solicitation, and non-disclosure agreements and how to use them for your business needs.
A non-compete agreement is a legal agreement that exists between an employer and their employee. It is responsible for limiting an employee’s ability to work for a competing business in the future. The purpose of non-compete agreements is to help business owners protect certain company operations, including specialized training or propriety information. Most non-compete agreements specify the amount of time that the employee is barred from working with competitors.
Non-compete agreements help prevent unfair competition and protect the best interests of your company. However, a key consideration to keep in mind for this agreement is its limitations in time and geographic scope. An agreement that’s too broad could be challenged and considered invalid in court.
Unlike the non-compete agreement, which protects unique and proprietary business information, a non-solicitation agreement is responsible for protecting your customers and clients. In a non-solicitation agreement, the employee agrees not to solicit or contact any clients or customers from your company. This is especially true if it’s for their benefit or the benefit of a competitor company.
Non-solicitation agreements are helpful for sales employees who have access to large amounts of client information. And, it’s important to write them effectively. A well-drafted non-solicitation agreement will include two key details:
Is it customers? Current employees? Potential client leads? Or a combination of all three?
Your non-solicitation agreement should outline the specific people that the employee is barred from contacting.
What kind of communication are you barring?
Is the employee banned from contacting them via text, email, or phone calls? What about social media messages? Snail mail?
The non-solicitation agreement should be particular about the type of activities that are considered “solicitation.”
A non-disclosure agreement is another legal contract that protects your business information. This agreement is responsible for preventing employees, and former employees, from discussing, posting, or sharing certain company information they learned while they were employed.
Business owners should consider using a non-disclosure agreement if their employees are dealing with sensitive client information, trade secrets, or if they have access to the company’s confidential information.
It’s important to know that the law generally disfavors these types of agreements between employers and employees. This is why you should take extra steps to ensure that your contracts are valid.
In Tennessee, the courts typically weigh four different factors when determining the validity of these agreements. They are:
The length of employment after the agreement was signed is typically considered by courts in Tennessee. This is used as a way to determine if the employee was able to properly assess the terms of their employment.
Employers should be able to prove that a “legitimate business interest” requires protection through the agreement.
The time outline in the agreement should be “no greater than necessary” in restricting an employee. If an employee is considered to be too limited, the contract may be determined invalid.
This factor isn’t applicable to most employers but does cover agreements in professions that serve the public (like medicine or law).
Each factor has its own unique standards, and they will be weighed and judged by the courts of Tennessee.
It’s important for employers to find a balance between agreements that are strong enough to protect their interests, but limited enough to be reasonable to the employee. And, the reality is that what the courts consider to be a “reasonably” limited agreement will differ on a case-by-case basis. The industry you’re in, the size of the market in your area, the number of qualified workers, and more may impact the validity of your agreements.
Consider contacting an experienced attorney to help you determine the agreements that are right for your business and how they should be written.