Non-Compete Agreements are helpful in most circumstances where you share sensitive business information with another party. This exchange could be for the purpose of employment, commercial negotiations, or the disclosure of intellectual property.
1. Employment or service
Non-Compete Agreements can help you manage employees and service providers with access to sensitive information or trade secrets.
It’s important to note that, in Ontario, you can only ask high-ranking executives to sign a Non-Compete Agreement. Non-competes for other employees are not enforceable.
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By signing, workers agree not to compete with you for a set amount of time or within a specific geographical area. While they’re working for you, and after they leave, the agreement deters them from taking a job or starting a business where they can gain a competitive advantage against your company.
Using a Non-Compete Agreement can also encourage you to invest resources in an employee. For example, you can pay for external training with peace of mind that employees can’t use it to start or work for a competing company.
Depending on your circumstances, you can add a non-compete clause directly to an Employment Contract instead of creating a separate Non-Compete Agreement.
2. Purchase or sale
You can use a Non-Compete Agreement to protect your interests in commercial negotiations, like when buying or selling a business. In fact, the first document that a prospective buyer should sign in an acquisition process is a non-compete or Confidentiality Agreement.
When buying a business
After selling a business to you, the original owner could use their existing relationships with customers and vendors to open a new business of the same type in the area. This would take valuable market share away from you and defeat the purpose of buying the business.
Entering a Non-Compete Agreement as part of the business acquisition can protect you against unfair competition.
When selling a business
When negotiating the sale of a business, the buyer usually conducts due diligence and assesses the value of the business they intend to purchase. In these cases, the seller offers the prospective buyer access to sensitive business information, like financial records and customer lists.
A Non-Compete Agreement can help ensure the buyer doesn’t misuse this business information for competitive purposes.
3. Invention
Any time you share intellectual property with someone, you can use a Non-Compete Agreement to protect your interests. Suppose you have to share an invention with a potential investor or disclose details of your work to a collaborator. Access to sensitive information could allow them to compete unfairly with you.
By having a Non-Compete Agreement in place, you can keep the invention details confidential and prevent the other party from using their knowledge against you. If they share or use the information in any way, you can take legal action against them.