Non-compete clauses should not be drafted as broadly as possible
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Some contracts include broad non-compete clauses: two-year bans on joining a competitor, or total restrictions on any involvement in competing fields. These provisions appear in employment agreements, director service contracts, founder agreements, and M&A seller commitments. Yet a non-compete does not gain legal strength merely by being written broadly. Drafted too widely, it can become difficult to enforce at the very moment the company needs it.
Protectable interests and reasonableness
After an employee leaves, their interest in freely choosing an occupation carries substantial weight. A post-employment restriction is therefore evaluated by asking whether the company has a genuine protectable interest (such as a trade secret, a customer relationship, a sales method, or proprietary know-how) and whether the restriction is reasonable in relation to that interest. Reviewing a clause requires checking the interest to be protected, the worker's position, the scope and duration of the ban, and any compensation provided for it. Practical information management also matters. Under the Unfair Competition Prevention Act, trade-secret protection requires secrecy management, usefulness, and non-public status. Access controls and confidentiality obligations remain essential. Assess whether a non-compete is needed for the specific individual and whether its scope is reasonable.
Covered personnel, scope and duration
Not every worker requires the same restriction, and imposing a blanket non-compete across an entire team can harm recruiting. Allocating obligations based on actual roles and project exposure can work better than a single universal clause. A ban on "any involvement in a competing business" leaves the definition of competing activity and the applicable territory unclear, which creates particular uncertainty for SaaS businesses. Duration should track how quickly the protected information becomes stale, rather than defaulting to several years. Depending on the circumstances, barring a departing salesperson from soliciting specific former customers may be more workable than barring them from any competitor altogether.
Compensation and the position of directors, founders and sellers
Consideration, such as extra pay, an enhanced retirement payment, or stock options, is relevant to validity, though its absence does not automatically invalidate a clause. For founders and key personnel, non-compete terms are frequently tied to equity and coordinated with the shareholders' agreement. Directors in office face a separate statutory regime under the Companies Act for specified competing transactions: shareholder approval is generally required under Article 356, with board approval replacing it for a company with a board of directors under Article 365. Investors often request founder non-competes, but an excessively broad restriction can unreasonably constrain a founder's next venture. M&A sellers are commonly subject to post-closing non-compete covenants, which still require clearly defined scope, duration, and territory.
Restrictions on contractors
Independent contractors and people doing side work may work with multiple clients. An overly broad non-compete can prevent them from accepting other work, potentially creating competition-law concerns, including abuse of a superior bargaining position depending on the circumstances. Confidentiality, intellectual property assignment, and narrow restrictions against soliciting specific customers generally fit practice better than a broad prohibition.
LegalAgent reviews non-compete clauses by examining the operational reality behind the text: what information the person can access, what items must be returned on departure, and who actually owns the customer relationship.