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Are noncompete agreements facing extinction?

On Behalf of | Oct 31, 2016 | Business Formation & Planning, Small Business Representation |

The business world is always evolving. Business owners are always looking for new ways to better ensure their enterprise is successful. Some new practices work out well, others do not. One such innovation in recent years was a growing reliance on noncompete agreements.

Noncompete agreements: A basic definition

These agreements began as a means to ensure that workers would not take closely guarded trade secrets to competitors. What kind of secrets? Think the family recipe for crispy chicken types of secrets.

The agreements have expanded and have become much more common than they once were. In fact, according to a recent publication by the United States Department of Labor (DOL), over 30 million Americans are covered by a noncompete agreement with their employers.

The fluid world of business: Yet another change

The business world is changing yet again. At least three government agencies have publicly called for reform when it comes to use of noncompete agreements. The DOL along with the White House and the Treasury Department have issued statements calling for a reduction on the reliance of these agreements. The agencies state that the agreements stifle workers’ mobility and ultimately hurt the economy.

The publication provides one oft cited example of noncompete agreement misuse: the Jimmy Johns scandal. The sandwich restaurant giant required all sandwich makers sign an agreement that they would not only refrain from finding a job with another sandwich maker, but that they would not work at other stores that even sold sandwiches. This noncompete agreement received serious criticism and, after an investigation by the New York Attorney General, Jimmy John’s stopped using the agreements and informed workers that the agreements were void.

Lessons from others’ faux pas: Tips for business owners

The shift from a wide use of noncompete agreements to increased criticism provides an example of the importance of carefully crafting your contracts to meet your business needs. Using generic documents that has overbroad language can lead to serious legal problems in the future. Contact an experienced attorney to discuss your business needs and better ensure your documents not only meet these needs, but would withstand a court challenge.