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Common mistakes when drafting a non-compete agreement

You have worked hard to mold your business into the successful company it is today. Central to this success are your key employees, who have become an integral part of your business. However, you may worry about what valuable information they may take with them should they eventually part ways with your Colorado company.

A non-compete agreement can promote fair competition and prevent the spread of your confidential information by restricting where employees can go after leaving your company. However, these agreements can be difficult to enforce. Here are four common mistakes when drafting non-compete agreements that can lead to enforceability issues:

Including unreasonable or excessive restrictions

Narrow your restrictions to those that are key to your business interests. This should include both reasonable time and geographical restrictions. If your agreement restricts employees from working for direct competitors permanently or across the country, Colorado courts may find issue with this. Rather, restrict the time limit to several months following their departure from your company and to a more reasonable geographical zone relative to your business.

Leaving in terms that are too vague or generic

A one-size-fits-all approach can leave you with terms that don’t even apply to your business. The agreement should specifically protect your business interests, including confidential information like business operations, customer lists, pricing formulas, future products or plans and more. Attempting to bar employees from sharing information that is deemed readily available or not specific enough to your company can derail the agreement.

Not providing the employee with an incentive

Your agreement should benefit both you and the employee. Otherwise, the employee has no reason to sign the agreement in the first place. According to The Balance, include both distinct reasoning behind the agreement and details on how you will compensate the employee in some way in exchange for agreeing to the terms.

Failing to address terms for conflict resolution

A non-compete agreement should address the possibility of the parties taking future legal action to resolve a conflict. Specify both your choice of law and venue to avoid confusion when a dispute arises. This can become particularly complicated later on if you do business across multiple states or jurisdictions.

Non-compete agreements can provide Colorado business owners with peace of mind. Yet, a hastily drafted or rarely reviewed agreement can have serious enforceability issues. Protect your business with reasonable terms, specific language and timely updates.

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