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Why small businesses should consider non-compete agreements

According to NPR News, around 1 in 5 American workers are bound by a non-compete agreement. While you might assume non-competes agreements are only for larger companies, small businesses are finding the value in them as well.

A non-compete agreement is a contract between an employer and employee that prohibits an employee from working at a competing business after leaving an old employer. Generally, larger companies use non-competes when employees have direct access to sensitive information or practices that they do not want shared with a competitor. However, non-competes are proving even more useful to small businesses to protect them from unfair competition.

3 ways non-competes protect small businesses:

  1. Saves you training time and resources

While the national average turnover rate is around 20 percent, it is much higher for small businesses. According to the Small Business Chronicle, retailers and restaurants have an average turnover rate between 60 and 90 percent. Additionally, it can cost a small business employer around 40 percent of an employee's salary to replace an entry-level position. Non-compete agreements might help save you money in the future by reducing your employee turnover rate.

  1. Protects your clients from leaving

Client retention is extremely important to small businesses who might have a few number of clients. If an employee leaves and brings several of your clients to a competing business, it can significantly hurt your profits. Non-compete agreements can help protect your clients in the event of an employee's departure.

  1. Keeps your confidential information safe

Likely, you have spent years getting your business off the ground and developing a niche that sets you apart from other businesses. Non-compete agreements can help protect the information or practices that makes your business unique and that you have likely spent years perfecting.

Non-compete agreements must be reasonable in scope, time, and geography, and necessary to protect your business' interests. Reasonableness of a non-compete depends on the length of time, geographical area and scope of its restrictions. If you are unsure whether your non-compete agreement or other employment contracts can be enforced under Texas law, consider speaking to an employment law attorney today.

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