A Guide to Non-Compete Agreements

A Guide to Non-Compete Agreements

Non Compete AgreementHenry Ford said “competition is the keen cutting edge of business.”  And there’s no doubt, our competitors keep us on our toes!  But we also often say our best asset is our team, and it certainly hurts when we lose one of our talented employees to a competitor!

That is why businesses use Non-Compete Agreements.  Check out our great guide to Non-Competes to protect your company!

How do Non-Compete Agreements work?

A Non-Compete Agreement is a contract that prevents an employee from working for a competing company for a specific period of time after leaving your employ.

The courts tend to carefully scrutinize these agreements, because they limit an individual’s ability to earn a living.  They check that the scope isn’t overly constricting in terms of geography or time.

For instance, if you state that your salesperson may not work for a competitor anywhere in the Puget Sound for the next ten years, it probably won’t be enforceable.  However, if you state that they can’t work for a competitor within 20 miles for six months, this is much more likely to be deemed reasonable by the courts.

If your employee does go to work for a competitor, your recourse will be to stop them with an injunction; therefore, it is important that your agreement bears up under a judge’s scrutiny.

How to manage Non-Compete Agreements:

It’s best to have the form signed by your employee at the time of hire.  If you have failed to have the Non-Compete signed at the time of hire, consent might be given later on in exchange for something. 

In order for it to be a legitimate agreement, both sides must be getting something of value in return.  If you require it at the time of hire, the employee is getting a job in return.  If it is requested mid-employment, it could be offered in exchange for a promotion, additional benefits, or stock options. 

  • Always allow an employee the option of having an attorney review any agreement they’re going to sign.
  • As with any legal document, you should have your own attorney review it before you put it into use.
  • Keep the Non Compete Agreement simple and understandable for your employees.
  • When your employee terminates, remind them of the agreement they’ve signed.

What if you hire someone who has a Non-Compete Agreement with a competitor?

What about the flipside?  What if you are hiring an employee away from your competitor?  Do you have to be concerned about their Non-Compete?  Absolutely!

Ask to see a copy of a job candidate’s Non-Compete:  If you are hiring someone who is working for a competitor, or has worked for a competitor in the recent past, ask the job applicant whether they have a Non-Compete.  If they do, ask to see a copy of it.

This will help you determine whether the restrictions in the agreement apply to your business.  If you have any doubts, run the agreement past your attorney.  Remember, your competitor can enforce the Non-Compete with an injunction, which could end up costing your company money.

Check the agreement to determine what specific restrictions it contains.  Did their employer have them sign a Confidentiality Agreement that protects their trade secrets and other proprietary information?  Are they restricted from soliciting that business’s customers?

Protect yourself with the right language:  You want to ensure that your new employee, and your business, comply with the restrictions in order to stand on strong legal ground.  You can incorporate language around these restrictions into the offer letter to your new employee.

For example, your offer letter might state that the new hire is prohibited from bringing any of their previous employer’s trade secrets, client lists, property or confidential information with them.

Make sure you are correctly interpreting a candidate’s Non-Compete:

It’s important to keep in mind that your interpretation of a candidate’s Non-Compete Agreement might differ from your competitor’s interpretation.

Once, I was about to hire someone who had worked for a staffing company in King County, a market I didn’t serve.  She had a Non-Compete restricting her from working for a staffing company within 30 miles.

I thought there would be no conflict, as my offices in Gig Harbor and Kitsap were much further away than that.  Much to my surprise, however, the King County staffing company owner measured the distance “as the crow flies” and saw me as a competitor, threatening to enforce the Non-Compete Agreement if I hired her former employee.

Should you hire your competitor’s employees?

Poaching an employee from a competitor can sometimes be to your advantage.  An unhappy employee or one that seeks better opportunity may approach their employer’s competitor in search of greener grass.

However, while this might feel like a great opportunity to gain market share and client trade secrets, and to do a little corporate espionage, be cautious.

If you talk with this employee and they are willing to bring their employer’s confidential and proprietary information to your business, keep in mind that they will most likely be willing to take yours to someone else.  Ask yourself if this is the type of employee that will best represent you and your business in the long run.

The wrap-up:

Non-compete Agreements can certainly be a good tool to protect your business’s interests.  Run yours past your attorney before implementing it to be sure it’ll stand up in court.  With the job market improving, it’s believed that two out of three workers are seeking new jobs.

Make sure if your talent walks out the door, your clients don’t walk out with them!

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