Development of Non-Compete Agreement (NCA)

Development of Non-Compete Agreement (NCA)

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Development of Non-Compete Agreement (NCA)

A Non-Compete Agreement (NCA), also known as a Non-Compete Clause, is a legal agreement between two parties (typically an employer and an employee) in the IT industry, in which the employee commits to refrain from engaging in competitive activities of a certain nature or in a specific location for a defined period after the termination of their collaboration. This type of agreement is used to protect confidential information, client base, and to maintain stable relations between the parties after the collaboration ends.

It is important that the terms of the NCA are reasonable and fair, as overly restrictive agreements may be deemed invalid by a court. In Ukraine, requirements and restrictions related to NCA first appeared in the Law on the Stimulation of Digital Economy Development in Ukraine for resident companies of Diia.City. Prior to this, Ukrainian legislation did not provide for the possibility of such an agreement, and the judicial practice considered them as limiting the rights of employees to work. Therefore, the preparation of an NCA should be approached with caution and with the condition of prior legal analysis of the parties to such an agreement.

When Should You Sign an NCA?

Restrictions on competition agreements should be considered in several situations where protection from competition is crucial. Let’s consider some cases and key aspects to take into account when entering into such agreements:

  • Working with confidential information. If an employee has access to a company’s confidential information, such as trade secrets, client lists, technological developments, then an NCA can help protect this information from being used by competitors.
  • Preserving the client base. In cases where an employee has direct access to or establishes relationships with clients, an NCA can prevent them from transitioning to a competitor and taking clients with them.
  • Intellectual property. If an employee is involved in the development of intellectual property (such as software products, designs, etc.), an NCA will regulate their ability to work in a similar field after the termination of the relationship.
  • Professional education and skills. In cases where a company invests in the professional development of its staff, an NCA can limit the employee’s ability to operate in competitive markets for a specified period.

What You Need to Know About Restrictive Covenants Agreements?

As mentioned above, key aspects that are important to consider when entering into an NCA are quite well regulated by the Law on the Stimulation of Digital Economy Development in Ukraine (Diia.City law):

  • Purpose and activities. The document must clearly define the purpose of the restrictions and the types of activities subject to restrictions. Clarity in this matter is crucial to avoid ambiguity.
  • Term of restrictions. Specify the period during which competition restrictions will be in effect. The duration should be justified and reasonable.
  • Geographical area. Specify a clear geographical area to which the restrictions apply. This can be local, regional, national, or international, depending on the nature of the business.
  • Compensation. Consider compensation for the party signing the competition restriction agreement. Providing for fair compensation can improve the contract’s enforceability.
  • Intellectual property. If the restriction is related to intellectual property (such as copyrights or patents), define how ownership and use will be resolved after the end of the relationship.
  • Validity and adequacy. The agreement should be adequate and reasonable in the context of the type of business and the positions of the parties. Overly restrictive agreements may be deemed invalid by a court.

NCA Agreement for Employees

This agreement is entered into between the employer and the employee. The employee agrees to refrain from engaging in competitive activities related to a specific business area for a defined period and within agreed-upon geographical restrictions.

In exchange for refraining from competitive activities, the employer commits to provide the employee with compensation at an agreed-upon amount. The employee agrees to keep the employer’s confidential information and not disclose it to third parties. In case of a breach of the agreement’s terms as determined by the parties, legal measures, including the possibility of a lawsuit or other sanctions, are envisaged.

NCA Agreement for Contractors

This agreement is entered into between the client and the contractor. The contractor agrees to refrain from engaging in competitive activities related to specific types of work or services for a defined period and within agreed-upon geographical restrictions.

In exchange for refraining from competitive activities, the client commits to provide the contractor with compensation at an agreed-upon amount. The contractor agrees to keep the client’s confidential information and not use it for their own benefit or disclose it to third parties. In case of a breach of the agreement’s terms as determined by the parties, legal liability, including the possibility of a lawsuit or other sanctions, is envisaged.

The development of a non-compete agreement with compliance to all legal aspects and norms is a service provided by the professional experts of Dextra Law. We guarantee professional protection of your interests, provide consultations, and legal support in the most complex situations.

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