Having a valued employee defect to a competitor and take sensitive proprietary information with him or her is a devastating blow. Considerable damage can result when an employee takes invaluable company information, such as proposed new product lines or strategic planning. Small and large businesses alike are faced with the problem of reducing the risk of losing more than an employee.

One commonly adopted solution is requiring a new employee to sign a non-compete agreement. Such a document is an agreement between the employer and employee stating that, should the employee choose to leave the company, he or she will not go to work for a competitor for a specified period of time, frequently two years.

A non-compete document is particularly useful for employees who have access to critical information, either through job responsibility or through social interactions with owners or high-level executives. While the signed agreement does not provide foolproof protection against such disruption, it deters this type of action by forcing the employee to reconsider the temptations. A signed document is an excellent reminder of one's responsibility.

A standard non-compete agreement might read this way:

Employee agrees as a condition of employment that, in the event of termination for any reason, he/ she will not engage in a similar or competitive business for a period of two years, nor will he/she contact or solicit any customer with whom Employer conducted business during his/her employment. This restrictive covenant shall be for a term of two years from termination, and shall encompass an area within a 50-mile radius of Employer's place of business.

Additional clauses might specify the protections desired by an individual business:

Employee agrees that Employer's customer lists, processes, manufacturing techniques, sales materials, and pricing information constitute the sole and exclusive property of Employer, and that the same are "trade secrets" under the law. Employee promises that under no circumstances shall he/she disclose same, during or after the term hereof, and upon violation of this provision Employee agrees that Employer shall be entitled to an injunction, compensatory and punitive damages, and reimbursement for its counsel fee.

Source: What Every Executive Better Know About the Law

It is important to note that non-compete agreements may be illegal in Montana, Nevada, North Dakota, and Oklahoma. Such agreements may be invalid or limited in Colorado, Florida, Hawaii, Louisiana, Oregon, South Dakota, and Wisconsin. While there is no federal law regarding non-compete agreements, employers should consult state regulations before using such a document.