What are Non-Competition Agreements

A non-competition agreement is a legal document that regulates the relationship between an employer and an employee, limiting their ability to work for competitors or start their own business in a similar field after being fired. Such an agreement is often concluded to protect trade secrets, retain key employees, and maintain competitive advantages in the market. It is important for both the employer and the employee to understand the essence and mechanism of such agreements to avoid potential legal disputes and maintain harmonious professional relations.

What is Important to Know about Non-Competition Agreements

A Non-Competition Agreement (NCA) is a document in which one party, usually an employee or business partner, undertakes not to engage in activities that may compete with the interests of the other party, usually the employer or business partner company. Such restrictions apply in a certain territory and for a specified period after an employment or business relationship is terminated. The main purpose of the NCA is to protect the company’s trade secrets, customer base, and other strategically important resources.

As part of the non-competition agreement, the parties agree:

1. Exclude the possibility of a former employee (or contractor) working for competitors after termination of employment or business relations.

2. Ensure that confidential information of value to the company is not disclosed.

The NCA helps a former employer maintain its competitive position and protect business secrets. The reason for terminating cooperation does not matter—the agreement comes into force from the moment of termination of the employment or business relationship.

What NCA conditions to Pay Attention to

Although non-competition agreements are complex tools in terms of their enforcement and require legal analysis, it is important to have an idea of their typical terms. Properly preparing the NCA allows you to minimize business risks and ensure its protection in a highly competitive environment.

Key elements of non-competition agreements include:

1. Validity Period
It is the period during which, after the termination of an employment or business relationship, the party undertakes to refrain from competitive activities.

2. Geographical Area
It is a zone of restrictions on competitive activity, which can vary from a specific city to a broader region, for example, an entire country.

3. Scope of Restrictions
These are activities that cannot be conducted by the NCA party for a certain period of time and specific competitive actions that are prohibited.

4. Compensation
In many countries, the initiator of the agreement is required to provide compensation for its conclusion and specify the amount and procedure of payments. This is especially true for former employees, who are often paid average earnings for the entire duration of the restrictions.

5. Liability for Violation of the NCA
The agreement prescribes the consequences for a former employee or partner who does not comply with the terms of the NCA.

What are the Features of the NCA, Including in Different Jurisdictions

There are several key aspects to consider when signing a non-competition agreement (NCA):

1. The Moment of the Conclusion of the NCA
Such agreements are usually signed at the beginning of an employment or business relationship with an employee, contractor, or partner rather than after the relationship ends. However, initiating the signing of an NCA is often impossible after the termination of cooperation since former employees or contractors no longer have obligations to the company.

2. The Legal Force of the Agreement
It should be understood that the NCA is not always legally binding. The effectiveness and legitimacy of such agreements depend on the legislation of a particular region or country. For example, in some jurisdictions, such as California (USA), such agreements may be limited or completely prohibited. In addition, the courts may invalidate an NCA if it unduly restricts the capabilities of a former employee or partner or is unjustified.

3. The Circle of Persons with Whom the NCA is Concluded
Non-competition agreements are usually not signed by all employees or contractors but only by those with access to confidential information, important technologies, or strategically important data.

When Can a Company Offer to Sign an NCA

A non-competition agreement is an important tool for protecting the company’s interests. It may be offered to employees or partners to sign in the following situations:

1. Access to Confidential Information
Suppose an employee or partner gets access to trade secrets, unique developments, technologies, customer base, or other valuable data. In that case, protecting them from being passed on to competitors is important. The NCA helps to minimize the risk of such information leakage.

2. Key Role in Business
Executives, top managers, specialists with unique competencies, or highly qualified employees who play a significant role in the company may be required to sign an NCA when required by the company’s internal rules. In this case, after being fired, the NCA prevents them from using their acquired skills and knowledge in competitors’ interests.

3. Investment in Employee Training
If a company invests significant resources in employee training, certification, or development, the NCA can protect these investments by preventing such employees from joining competitors in the short term.

4. Conclusion of Partnership Agreements
In cooperation with external partners, consultants, or contractors, a company may offer to sign an NCA to protect its business model, innovation, or market position.

5. Restriction of Competition after Dismissal
If an employee leaves the company, the NCA may temporarily restrict their work in competing companies to minimize direct competition with their former employer.

6. Mergers and Acquisitions
In M&A transactions, the parties often sign an NCA to prevent the creation of new competitive businesses or transfer key technologies after the transaction is completed.

7. Joining Startups or Innovative Companies
Companies operating in highly competitive industries or developing unique products often require employees or partners to sign an NCA to protect their ideas and strategies.

How NCA is Applied in Belarus

In Belarus, the government has determined the procedure for concluding an NCA only for companies that are residents of the High-Tech Park of Belarus. Such companies have the right to include non-competition clauses in their contracts with employees when hiring. Such provisions usually relate to qualified professionals accessing internal business processes and technologies. The terms of the NCA restrict former employees for a period of no more than one year after the termination of the employment relationship.

According to the terms of the NCA, a dismissed employee is ineligible for one year.:

Work as an employee or contractor for competing companies.
To open your own business in a field similar to an employer’s.
Participate in managing competitive organizations, including taking leadership positions or participating in collegial management bodies.

The former employee receives a certain amount of compensation for compliance with the terms of the NCA during the established period.

The NCA prescribes:

The territorial framework within which non-competition obligations apply.
Types of activities for which the employee undertakes obligations of non-competition.
Terms of liability in case of violation of the terms of the agreement.
The terms of the agreement.

What Kind of Compensation Can the NCA Provide

The minimum compensation for signing a non-competition agreement (NCA) in Belarus is set exclusively for companies that are residents of the Hi-Tech Park. For their former employees, the minimum compensation for concluding and executing a non-competition agreement is at least one-third of the average monthly salary, which is determined by the salary for the last working year. Compensation is paid for each month of fulfilling the terms of the NCA.

There is an opinion that it is reasonable to pay compensation not only after the termination of the employment relationship but also during the employee’s working time in the company. A similar approach is already being practised in many European countries.

In other states, the monthly compensation for complying with the terms of the NCA ranges from 30 to 50% of an employee’s average salary before dismissal.

What Should an Employee with Whom an NCA is Concluded Pay Attention to

You should not treat the signing of the NCA as just another formality that needs to be completed for employment. When an employer offers to sign an NCA, we recommend that you pay attention to more than a few points:

1. Clarity of Terms
Make sure that geographical restrictions are clearly defined (for example, the regions where you cannot work by profession after you leave).

Check the agreement’s time frame (usually from 6 to 24 months, depending on the jurisdiction). Too long a term may be considered illegal in court.

2. Limitation of the Field of Activity
Make sure that the restriction applies only to a specific area related to your work and not to the entire industry. Broad restrictions can be challenged.

3. Compensation
Some jurisdictions require that an employee be compensated for agreeing to the NCA. Check if this is specified in the contract.

4. Legality
Carefully study the legislation of the country or region you enter into an employment contract. In some countries, the NCA has strict restrictions or is completely prohibited.

5. Potential Consequences
Assess the risks to your career and the opportunity to find a job after the employment relationship ends. If the conditions seem too harsh, try to discuss them with your employer.

What Should an Employer Who Wants to Sign an NCA Pay Attention to

The employer should not strictly limit the professional future of the employee after dismissal under the terms of the NCA to avoid the risk of litigation. Here’s what we recommend paying attention to when developing NCA conditions:

1. Proportionality of Restrictions
Make sure that the restrictions are proportional to the company’s risks. A court can annul too strict conditions.

2. Justification
State the clear reasons why an NCA is required. Key employees need to have access to confidential information or a customer base.

3. Geographical and Time Framework
Avoid too broad geographical and time framework. For example, a ban on working in other countries may be considered excessive.

4. Employee Compensation
If your legislation requires compensation for the NCA, ensure it is calculated transparently and include it in the contract.

5. Documentation and Signing
Make sure that the NCA is signed before starting work or during the employment relationship; otherwise, it may be invalidated.

6. Separation from the NDA (Non-Disclosure Agreement)
Ensure that the NCA is not confused with the NDA (Non-Disclosure Agreement), as these documents regulate different legal relationships.

Conclusion

The Non-Competition Agreement (NCA) is an important business tool that helps companies protect their interests and maintain competitive advantages. Although the main provisions of the NCA may vary depending on the legislation and practice of different countries, its main purpose remains unchanged — to prevent the leakage of critical information and maintain market stability.

It should be noted that effective application of the NCA requires a balance between the employer’s interests and the employee’s rights. Therefore, the terms of these agreements should be approached with special care, taking into account both the business’s needs and employees’ rights.

In a dynamic economy and a rapidly changing market, compliance with the terms of the NCA and competent compensation can significantly increase trust between employers and employees, contributing to a more favourable atmosphere for business and career development.

Careful attention to the details of the NCA will help both sides avoid conflicts and lengthy litigation in the future.