Jan 02 2025

The Non-Compete Clause: should you implement it in your startup?

In the startup world, where innovation and knowledge are key assets, protecting competitive advantage can be a challenge. The non-compete clause emerges as a legal tool to prevent partners or employees from using privileged information in favour of competitors. However, its implementation is not straightforward and raises critical questions about its appropriateness and feasibility.

A non-compete clause is an agreement whereby a person undertakes not to work with competing companies or engage in similar activities during or after his or her relationship with the company. This type of covenant is intended to protect know-how, business relationships and other strategic assets, especially in industries where innovation is the main driver.

Advantages of its implementation

Protection of strategic know-how

Startups often operate in highly competitive markets and rely on disruptive innovations. A well-designed non-compete clause minimises the risk of internal talent transferring trade secrets to competitors.

Preserving business relationships

Relationships with customers, suppliers and strategic partners are critical. This type of agreement helps to avoid leakage of these connections to competitors.

Reducing uncertainties

In an environment where the movement of key talent can significantly alter market position, these pacts provide stability.

Legal challenges and constraints

In legal terms, the clause must meet certain requirements to be valid. For example:

Duration: in general, the period varies according to the nature of the activity, and must be reasonable in terms of its duration, geographical scope and material to be considered valid.
Legitimate interest: the period must be sufficient to protect commercial interests, but without imposing excessive restrictions that unnecessarily limit the freedom of competition.

Failure to comply with these requirements may invalidate the clause, exposing the Partners to legal disputes. In addition, the terms of the covenants should be balanced, avoiding restrictions that are disproportionate.

Key factors for start-ups

In the first steps of a start-up, know-how, strategic plans and initial relationships with customers and suppliers are indispensable assets. Any leakage of information can jeopardise the survival of the company before it is able to consolidate.
Startups operating in sectors such as technology, biotechnology or creative industries tend to benefit more from these pacts due to the sensitivity of their innovations and processes.
Although resources are limited in the early stages, establishing non-compete clauses at the outset lays the foundation for a robust legal structure that can be adjusted as the company grows.

Good practices for implementing non-compete clauses

Precise and proportionate drafting: it is essential that the agreement be specific in terms of time, territory and scope of activity. Ambiguous wording can lead to legal disputes.

Consultation with specialists: having legal advice specialised in commercial law allows you to design agreements that are valid and tailored to the particular needs of the startup.

A non-compete clause can be a valuable strategic tool to protect a startup’s interests, and protecting the partnership from the early stages with measures such as non-compete clauses is not only practical, but crucial to ensure the stability and development of the project.

A balanced approach, backed by clear drafting and appropriate legal advice to startups will allow them to make the most of this tool without compromising their flexibility or viability.