As the founder of your startup, you have the right to protect the interest of your business. One of the risks you want to safeguard your business against is key employees with proprietary knowledge of your start-up leaving your company and joining a competitor or even setting up a competing venture.
From an investor’s point of view, they might also want the insurance that the founder doesn’t leave somewhere along the line and set up another business in competition with their investment.
One way to protect your startup from unfair competition is to include non-compete clauses in your employment contracts. You could also have a non-compete in the shareholders agreement that you sign with your investors. This gives them peace of mind that you are protecting the interests of their investments and subjecting yourself to non-compete obligations.
To successfully grow your startup, you will invest significant time and money to develop your team. By signing a non-compete agreement, the employee undertakes to not compete with your business if they leave your employment. So non-competes help you protect your business, trade secrets, intellectual property and ultimately, your investors’ investment.
Whilst most jurisdictions recognise some form of a non-compete clause, the validity and enforcement of non-competes are some of the most argued-about aspects of employment law.
Before you sign or include a non-compete in your contract, you must fully understand what a non-compete is, the requirements for enforceability in your jurisdiction, and what type of interests you can protect with a non-compete.
What is a non-compete?
In legal terms, a non-compete is an agreement or a contract between an employer (which, in the case of the start-up, will probably be the founding team) and an employee preventing the employee from competing with the business during and after the employment has ended.
It could be direct or indirect competition and includes leaving the current employer to work for a competitor, starting their own business in competition with the previous employer, or sharing trade secrets with a competitor. It could also prevent the ex-employee from recruiting your employees to follow them to a new employer or start-up. Likewise, it can prevent an ex-employee from poaching your customers.
Non-competes are particularly important when hiring key employees who will have access to confidential and proprietary information about your startup.
The non-compete could be a separate agreement or a clause in the employment contract. It should be signed at the beginning of the employment relationship.
Without a non-compete, ex-employees could legally use proprietary information or trade secrets to further their careers or give a competitor an advantage.
