Non-Competition Agreements Between Businesses

by Marie Huntington
Non-competition agreements protect a company's confidential information.

Non-competition agreements protect a company's confidential information.

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Non-competition agreements serve to protect a company’s sensitive and confidential information, such as computer systems, marketing plans and pricing strategies. These types of agreements may apply to employees as well as any person or company that interacts with a business and encounters confidential information. Some non-compete agreements may not be upheld in court, if they are unreasonable in scope and duration.


A non-competition agreement serves to protect certain confidential information within a company that employees, independent contractors, business partners or business clients may come in contact with while working with the company. When an individual is provided with a company’s confidential information, the non-competition agreement forbids him from using the information to compete with the company. Therefore, if a former employee of a company decides to enter his own business venture as a competitor, he may not use the information to the detriment of his former employer. However, it doesn’t prevent the individual from merely maintaining a right to earn a living. Additionally, when employees sign a non-competition agreement, they may not reveal the information protected by the scope of the agreement to competitor businesses, former employers and any outsiders.


Not every employee, independent contractor or other business client is required to sign a non-competition agreement. Only individuals with access to a company’s sensitive information that affects the entire operation of the business or has the potential to widely impact the business operation will need to sign a non-competition agreement. Officers, directors and some administrative positions, such as secretaries, may encounter the company’s sensitive and confidential information.


A non-competition agreement must adhere to the basic requirements of a valid contract. These essential elements include offer, acceptance and consideration. Both parties must have a mutual agreement to the terms of the contract, and both parties must provide consideration to seal the agreement. The non-competition agreement must stipulate exactly what must be kept confidential and how the confidential information relates to employee, contractor or business clients’ connection with the business. In addition, the contract should state the duration of the agreement.

Legal Aspects

A judge maintains discretion in determining whether a non-competition agreement is valid. However, the agreement may be upheld in court when it is reasonable in scope and duration, and it provides a balance between the interests of both parties. Some non-competition agreements may be hard to enforce. However, they must adhere to applicable state law, and the restrictions must reasonably protect the company’s interest without preventing fair competition.

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