Have you ever had a mentor or been one? Perhaps you identified as a business coach or consultant?
Maybe you had an informal mentor-mentee relationship, such as a family friend, or maybe a more formal relationship, such as a guidance counselor or a boss at an internship. Chances are most people can answer yes to this, but how many have signed a non-compete agreement for such a relationship?
As employment agreements are on the rise, so are non-compete agreements. Something that was once reserved for executives is now being used for every employee of a company and branching out into new business areas that have never used them before.
So do you need to ask your potential mentee to sign a non-compete agreement, or should you sign that non-compete that your potential mentor asked you to sign? Before you can make either of these decisions you need to know what the agreement is and how it can or cannot be enforced.
Once you know how a non-compete can affect you in your specific situation you can determine its necessity in your mentor-mentee situation.
Definition of a Non-Compete Agreement
In general, a non-compete agreement is a contract between two parties where one party agrees to refrain from seeking similar employment from a competitor or directly competing with the other party for a benefit. There are usually time period and geographic location limitations in place to make the agreement reasonable.
There are two main types of non-compete agreements:
- “Employment” non-competes: These agreements arise out of a standard employer-employee relationship. For example, a doctor employed by a medical group may agree to not seek employment at similar medical groups.
- “Catch-all” non-competes: These agreements arise out of other types of legal or business arrangements. For example, two parties may form a partnership to invest in real estate and agree to not invest in real estate in the area outside of the partnership.
You might see a non-compete agreement also referred to as a Non-Compete Clause (NCC) or a Covenant Not to Compete (CNC).
Enforceability of Non-Compete Agreements
Non-competes are usually enforceable if the terms are reasonable and there is consideration (a benefit for the non-competing employee for agreeing not to compete).
For example, your agreement is probably not valid if you don’t allow the party to compete anywhere in the United States for ten years. An agreement where the party can’t compete for six months within one particular state will likely be valid. This is meant to balance the interests of the non-competing party’s ability to make a living, with the other party’s interest in protecting their business, with the public’s interest in the services/products of both parties.
In addition, certain states have limited or even banned non-competes so you must research the laws of your particular jurisdiction.
Non-Compete Agreements in Mentor-Mentee Relationships
A non-compete can be utilized in a mentor-mentee relationship, just like in an employment relationship.
- For Mentors:
In a mentor-mentee relationship the mentor is providing access to information that they have worked hard to achieve over the course of growing their business in order to help grow the mentee’s abilities. This can include legitimate business information that needs to be protected, thus it is important to protect your business by having a mentee sign a non-compete.
- For Mentees:
An overly aggressive non-compete can severely hinder a mentee’s future ability to work. If you are asked to sign one, you should place close attention to terms that could negatively affect you in the future such as, length of the agreement, area of work covered, geography covered, under what circumstances it applies, and payment of lawyer fees. Don’t forget that you can negotiate terms that don’t feel right to you. A mentor who won’t budge on overly broad terms might not be the safest bet for a mentor-mentee relationship.
However, a non-compete might not be the best option for a mentor-mentee relationship. Instead, a simple confidentiality agreement (non-disclosure agreement or NDA) may be a better option.
Writing Your Non-Compete Agreement
If you have agreed to take on a mentee and want to use a non-compete, where do you begin writing one? Some items that your agreement should include in order to be considered valid are:
- The names and addresses of both parties
- The effective date of the agreement
- The time period that the agreement lasts
- The geographic limitation of the agreement
- The legitimate business interest at play (e.g., a reason to need the non-compete, such as protecting their client list, confidential business information, or trade secret.)
- The consideration (how the party who agrees to not compete will be compensated. Very little is required to meet this. For example, if signed at the start of employment, the job itself is probably enough to count as consideration.)
- Signatures of both parties
You may also include additional terms, such as:
- The non-competing party may not disclose any of the other party’s confidential information.
- The non-competing party may not go after the other party’s clients for a certain time period.
- The non-competing party may not hire employees of the other party for a certain time period.
A non-compete agreement can be an important part of protecting your business, but for most “normal” mentees or employees, it doesn’t need to be overly broad. If you are writing one, be reasonable! If you are signing one, read the fine print carefully!
Writing Your Confidentiality Agreement
Are you taking on a mentee, but are using a confidentiality agreement and not a non-compete? Some items that your agreement should include are:
- State the parties
- Define what information is included under the term ‘confidential’
- Any exclusions
- Any specific obligations of either party
- Relevant time period
- List any penalties for breach
- Signature of both parties
Depending on the depth and type of business relationship you are planning to embark on, a non-compete or a confidentiality agreement is a must for protecting your business.