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Not Every Employer or Employee Needs a Non-Compete!

Written by: Marijo McCarthy

Article Overview: It is truly rewarding to write an article which foments discussion... and it doesn't matter whether we agree or disagree, simply that we talk about something which might be important to your business. However, the end result of a non-compete discussion should not necessarily be to foist one of these agreements on every employee. Rather, it should prompt you to think through which of your long-time key employees (or new hires) are in a position to harm your business if they leave tomorrow and join or open a competing company.

Not Every Employer or Employee Needs a Non-Compete!

It is truly rewarding to write an article which foments discussion... and it doesn't matter whether we agree or disagree, simply that we talk about something which might be important to your business. However, the end result of a non-compete discussion should not necessarily be to foist one of these agreements on every employee. Rather, it should prompt you to think through which of your long-time key employees (or new hires) are in a position to harm your business if they leave tomorrow and join or open a competing company.

Wouldn't it be safer and simpler to have everyone just sign one?

Actually, no, and such a strategy would probably not produce what you want, which is a reasonable agreement that balances your need to protect your business with the need of a departing employee to make a living. You want an agreement which is enforceable for an agreed-upon period of time, and that restrains a "key" employee (I'll come back to this definition) from taking everything you have shared with him or her about your business and clients. Such an agreement does not apply to everyone.

So, who should sign one? Let me answer that by giving you an example...

Suppose you run a marketing and communications firm. You have 25 employees, 20 of whom work day or night shifts running printing equipment which produces snazzy brochures and colorful marketing pieces. Three of the employees are office staff; two of them are sales people who call and visit your customers every day.

In this example, the only employees who are "key" are your two sales people. They (and only they) have access to everything you want protected in your business: Sales and pricing information, customer lists, terms of sales with those customers, etc. You get the picture.

If you attempt to have all your folks sign a non-compete agreement, you will overreach, cause confusion and concern among the majority of your staff, and may actually undermine the enforceability of an agreement with your two key employees.

(Note that a non-compete agreement is usually only one part of a larger agreement which protects the confidential information of your company. In the example above, you may want the staff person who is your controller to sign a confidentiality agreement. This won't contain a non-compete, but it will require that your departing controller not blab your business all over town.)

What should they sign?

Non-compete agreements can and should be tailored to fit both the specific job description as well as that which is confidential about your particular company.

A few key portions of such an agreement would include:

-- an agreement by the employee to protect and not disclose the confidential information belonging to the company and, possibly, its clients or customers;

-- an agreement by the employee not to solicit any clients/customers or employees of your company on their way out the door;

-- an agreement by the employee not to compete with the company in a number of carefully-defined ways; and

-- an acknowledgment by the new hire that he or she has no non-disclosure, non-solicit or non-compete restrictions with a previous employer.

In addition, in asking a key employee to sign a non-compete, you must be sure to offer the employee "consideration," i.e., something of value at signing. For the new hire it's the job itself. For the current employee, on the other hand, it may be a promotion, bonus, extra vacation, etc. The key is that it offers value (be sure your non-compete agreement states what the consideration is).

In summary, think this issue through in the context of your own business, and above all, be sure you need an agreement to begin with. If you do, be sure it is tailored to fit the situation and signed only by the key employees.

P.S. If you think this topic doesn't have broad appeal, just Google "non compete agreements" and start sorting through the 249,000 listings!

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Article Tags: contract, employee, employer, new hires, noncompete agreement



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