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Why NonCompete Means Dont Lie Cheat or Steal

Written by: Marijo McCarthy

Article Overview: Scott Kirsner's December 30, 2007 column in the business pages of the Boston Globe caught my eye that morning. His premise... "Why non-compete means 'don't thrive'"... caused me to revisit a favorite client topic... non-compete agreements. They are the subject of more questions, comments and complaints among my small business clients than almost any other, and for a good reason.

Why NonCompete Means Dont Lie Cheat or Steal

Scott Kirsner's December 30, 2007 column in the business pages of the Boston Globe caught my eye that morning. His premise... "Why non-compete means 'don't thrive'"... caused me to revisit a favorite client topic... non-compete agreements. They are the subject of more questions, comments and complaints among my small business clients than almost any other, and for a good reason.

Kirsner's focus was on one of the two business sides of this issue and his conclusion was one with which I do not agree. So let's round out this one-sided picture he has drawn and visit the small business owner side of non-competes. After all, without a business reason for their existence, they would simply not exist!

Kirsner's column emphasized the technology sector, his expertise. While my clients are more traditional product and service businesses, the issue is the same: What is the real price of protecting your business from innovative or entrepreneurial-wannabe employees with wanderlust?

Kirsner clearly believes that ideas that are stifled by limiting employees' mobility is innovation lost, a reasonable conclusion if we look at just one side of this coin. However, if we flip the coin and look at the small business owner's concerns, we see a very different picture.

Let's consider a typical scenario in the small business community: You have worked very hard for 10, 15, or 20 years to build your business. You have very likely forgone salary in the beginning years, have sometimes paid yourself less in order to hire that rising star sales manager, have worried about cash flow, signed personal guarantees for office space and a line of credit and lost sleep during slow sales and no growth periods.

In other words, you have invested heart, soul and sweat equity and taken substantial personal risk to start and grow your business.

Along the way, you have hired some talented people, sometimes fresh out of college, eager to learn and advance. You have paid them well and provided great benefits. You have introduced them to your clients and mentored them as they grew in their jobs. And one Friday, one of those stars walks into your office, drops a letter of resignation on your desk, and tells you simply that he is moving on.

All fine and good, until come Monday, that same former employee drives across town to your competitor and joins the payroll. Or, rents a small office down the street, hangs an "open for business" sign out front and begins to call your clients. Believe me, now is NOT the time to start thinking about a non-compete agreement... it's too late!

But what if you already had such an agreement in place... would this scenario end differently? Maybe.

Scott Kirsner clearly believes unrestricted competition is good for an innovative economy... not an unreasonable position for a journalist. But unfettered freedom for innovative employees means someone else pays the price, and that someone might very well be you... with no warning and no recourse.

So-called non-compete agreements cover a very broad spectrum -- from asking an employee not to solicit current employees, customers and advisors, to flat out prohibiting an employee from joining the workforce of a client or competitor. All for a "reasonable period of time."

"Reasonable," of course, is the key word here, and relates to time, place and other restrictions, none of which should prevent an employee from making a living anywhere in the world for an extended period of time. The business owner who seeks to enforce that type of agreement will find it cut back or struck down by an unsympathetic judge who leans on the side of the employee needing to make a living.

But for the reasonable entrepreneur who invested time and money, who worked hard, who took the risk, who hired, mentored and rewarded key employees, why shouldn't they be able to reasonably protect all that investment? The answer is, of course, that they should!

So, where is the middle ground? Here's my take:

For the employee concerned about a non-compete. Ask lots of questions and understand what you are signing. Employment, particularly at the level where you will be asked to sign a non-compete, is a negotiation. Remember, no one forced you to accept that employment... you accepted because you saw a better title, a bigger paycheck, a more rewarding job, an opportunity to learn. With that final offer, however, came an obligation... clearly detailed in a written document which you were given the opportunity to read before you accepted the job. It's now time to honor that written agreement as you move on.

For the employer concerned about a potential conflict when a key employee leaves the company. Communicate, upfront, before your potential employee joins you, exactly what is expected in terms of loyalty and avoidance of conflicts both during and after employment. Make sure your agreements are clear, specific and discussed with the key employees you expect to sign and honor these obligations. Make sure the potential employee knows why you have such an agreement to protect certain assets and goodwill of your business. During the exit interview, be sure you remind the departing employee -- orally and in writing -- of the agreement entered into all those years ago. Then, wish them well, monitor the situation for a year, and move on.

In summary, communication -- on both sides -- is key. From beginning to end of employment, communication will go a long way towards breaking down the barriers between the employee and the business owner. Because in the end, both sides have reasonable concerns, and with a clear, upfront, written agreement, the needs of both can indeed be met.

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Article Tags: employee, employer, noncompete agreements



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