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Here's a nightmare that can ruin your sleep.

You hire a bright young man to help manage your business. You spend hundreds of hours training him – and thousands of dollars sending him to management seminars. He learns all the aspects of your business.

Then, two years later, he quits and opens his own, similar business a mile from yours. You discover he's taken your customer list and other trade secrets, and lured away three good employees.

What a mess! Fortunately, this doesn't happen often – but it does happen. If your business may be vulnerable, there are steps you can take to bolster your legal position. Basically, these steps involve having key employees sign one or more agreements making clear the legal consequences of being disloyal.

You can do this with a new employee, or one who's been on your payroll for a while. But in the case of an existing employee, be sure you offer something of value in exchange for his or her signature. This can be, for example, a bonus or a raise. (In legal jargon, this is called "consideration.")

None of the agreements suggested here can guarantee that your business won't be damaged by a wayward employee.Still, the agreements do give you some powerful weapons to limit the damage.

You can have separate agreements, or one big agreement that covers all the subjects described here.

Non-Compete Agreement

Sometimes this is called a covenant not to compete. If it's carefully worded, it will be enforced by judges in most states. A few states (such as California) don't enforce these agreements.

In a non-compete agreement, the employee agrees not to open a business similar to yours, or work for or own an interest in a competing business.

If you go to court to enforce a non-compete agreement, the judge will scrutinize it to make sure it's reasonable. You may be out of luck if the agreement unreasonably limits the employee's ability to earn a living. To improve the odds that a non-compete agreement will be enforced, consider these suggestions:

•Refer to a specific geographic territory. For example, the employee might agree not to compete with your business in your city or county. This suggestion won't make sense, however, if you have a national business, or one that operates primarily over the Internet.

•Limit the duration. Perhaps have the employee agree not to compete with your business for two years after leaving your company.