Covenant Not to Compete: Advantages and Disadvantages
Covenant not to compete is an agreement in an employment contract when hiring and means that the employer restricts the employee from competing with him in any form after dismissal. However, an important caveat is the fact that a contract cannot restrict an employee from selling goods or services to a client. Covenant not to compete is used in different situations and protects the company’s management from possible competition with a former employee who knows the structure of the organization from the inside. Moreover, it protects the employees themselves from possible competition with the former employer. However, the agreement has clauses within which it has legal force.
When signing an agreement, a consideration clause is written in the contract, which gives the contract legal force. At the same time, the consideration must be legally binding and agreed upon by both parties (Clarkson et al., 2014). In addition, the award must be of legal value and may include a promise, a refund, or the performance of some action under the terms of the contract. Thus, this is the basis of the transaction, which is signed by the two parties and specifies the object of value.
Another important point is the adequacy of the agreement, which reflects the fairness of the deal being concluded. The main claim is that not only an economically or financially valuable item falls under the definition of legally sufficient compensation, but by agreement a general act or promise. Moreover, in the case of judicial precedent, lawyers leave it up to the parties to determine the value of anything at their own discretion (Clarkson et al., 2014). If the parties are able to conclude a mutual agreement regarding pricing policy, then the case in court is resolved faster. However, there are times when processes are drawn out and require more careful consideration.
Thus, in 2020, an incident occurred when the employee decided to discuss the termination of the contract with the management. The manager approved the employee’s desire, but the latter indicated that he could return to work if an amendment was made to the non-competition clause amended (Jongepier, n.d.). The management refused to fully satisfy the application, but mentioned that it could delete some companies from there.
The worker refused, and after that the doctor diagnosed him with an illness, as a result of which he would not be able to work for some time. After 2 days, the employer stopped paying wages without explaining the reason. The court ruled that covenants not to compete would be valid for 12 months and within a radius of 75 km from the company’s headquarters (Jongepier, n.d.). However, the continued payment of the employee’s salary was denied. The appellate court’s ruling was that the employer was right in its concerns about competition and extended the clause to two years.
The decision on non-competition was executed and the interests of the employer were protected. For two years, the employee could not seek a position in competing companies, which did not endanger the organization’s arbitrariness. The non-competition agreement is enforceable, since there is no established fault for the employer, while the employee demanded to change the clause, varying his dismissal. I agree with the court’s decision, because in this case the former employee is trying to get benefits from the employer without giving anything in return, which will go against the signed agreement.
References
Clarkson, K. W., Miller, R. L., & Cross, F. B. (2014). Business law: Text and cases. Cengage Learning.
Jongepier, E. (n.d.). Non-competition clause in court. Fennek Advocaten.