Non-Compete Clauses - Should You Sign?
Non-compete clauses are becoming increasingly common in agent agreements. These clauses typically restrict an agent from working for a competing company or pursuing a similar business for a certain period of time after their contract with the current company ends. While these clauses have their benefits, they also have their drawbacks. Lets work out some Pros and Cons.
Pros:
One of the primary benefits of a non-compete clause is that it protects the business interests of the company. By restricting the agent from working for a competing company or pursuing a similar business, the company can prevent its confidential information, trade secrets, and other sensitive data from being shared with competitors. This clause ensures that the company's business practices, methods, and strategies remain confidential, preventing any damage to the company's reputation or intellectual property.
Another advantage of non-compete clauses is that they can help processors retain their agents. By including a non-compete clause in an agent agreement, processors can ensure that their agents will not leave and work for their competitors. This is particularly useful when agents have knowledge, and the competition for agents is high. By retaining key agents, processors can maintain their competitive advantage and continue to grow and succeed.
Non-compete clauses can also protect the relationships between the processor and its merchants. When an agent leaves a company and goes to work for another processor, they may try to take their clients with them. This can damage the processors relationship with its merchants and affect its revenue. A non-compete clause prevents this from happening by restricting the agent from contacting or working with the processors merchants for a certain period of time after the contract ends. This is usually covered in a separate line item in an agent agreement.
Cons:
The primary drawback of a non-compete clause is that it limits an agent's job opportunities. When an agent signs an agreement with a non-compete clause, they may find it difficult to find employment with another processor or pursue a similar business. This can be particularly challenging if the agent has specialized skills and knowledge. In addition if you have a non-compete you may also have a clause that if you break this, you lose your residuals!
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Non-compete clauses can also be difficult to enforce. Some states have laws that restrict the use of non-compete clauses, while others have specific requirements that must be met for a non-compete clause to be considered valid. If a non-compete clause is found to be unenforceable, it will have no legal effect, and the agent will be free to work for another processor or pursue a similar business. You will most likely still lose your residuals.
Non-compete clauses typically have a limited duration. While this is designed to protect the processors interests, it can also be a disadvantage for the agent. The duration of the non-compete clause may be longer than the period for which the agent wishes to work for the processor, limiting their opportunities even after their contract with the processor ends.
Non-compete clauses can also lead to legal disputes between the processor and the agent. If the agent violates the non-compete clause by working for a competitor or pursuing a similar business, the processor may sue the agent for breach of contract. This can be a time-consuming and expensive process, and it can also damage the reputation of the agent. What makes this even worse is the processor will stop paying you for breaching the contract. Most agents don't have a reserve of funds to not only live, but also go to court while trying to get the non-compete thrown out. Processors know this and in fact some processors have in-house legal counsel ready to suck you dry.
Conclusion:
Non-compete clauses have their pros and cons, and processors need to carefully consider whether they are necessary in their agent agreements. While these clauses can protect the business interests of the processor, they can also limit an agent's job opportunities and lead to legal disputes. Ultimately, my personal opinion is they serve no purpose except to tie an agent down and force them to continue with the Processor. We are not nuclear physicists that could take some insane knowledge to Russia or something. Literally this clause is only monetary driven.
Always open for discussion about the industry,
-Derrick Hess
504-722-4785
Derrick, thanks for sharing!