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Non-Competes – Should We Or Shouldn’t We?
An employer’s perspective
— Written by Sarah Hightower Hill
WHAT IS COMPETITION?
"competition through free enterprise and open markets is the organizing principle
for most of the U.S. economy. Competition among firms generally works best to
achieve optimum prices, quantity, and quality of goods and services for consumers.
Antitrust law, codified in the Sherman Act, the FTC Act, and other statutes,
seeks "to maximize consumer welfare by encouraging firms to behave competitively."
Competition can stimulate innovation. Competition among firms can spur the invention
of new or better products or more efficient processes. Firms may race to be the
first to market an innovative technology. Companies may invent lower-cost manufacturing
processes. thereby increasing their profits and enhancing their ability to compete.
Competition can prompt firms to identify consumers' unmet needs and develop new
products or services to satisfy them.”
---
A quote from FTC report
dated October 28, 2003
executive summary
THE NON-COMPETE – DOES IT STOP THE PROCESS?
Not if you do your homework. If you do, it will protect the competitive process,
not stop it. The non-compete is designed to protect your business not punish
employees – remember that and you will not be in conflict with basic western
economic philosophy when you ask your employees not to compete against you.
A few years ago employers tip toed around the issue of non-compete agreements
with key employees. Today most employees expect to be asked to sign some type
of protective document as a condition of employment. With the burst of technology
in the past two decades comes the rush to protect trade secrets and intellectual
property, but technology secrets are not the only ones worthy of protection.
Client lists, business systems, employees and employee lists are some among the
many other issues for employers to consider. Non Compete Agreements are designed
to protect employers from the loss of valuable secrets and from the tactics of
unscrupulous competitors or employees who would “sell out”.
If you are not currently using a non-compete agreement and are considering implementing
one there are several simple and complex issues you should be keenly aware of.
To assist you with general information, the following are some common sense guidelines
gleaned from a wealth of information and research available from public sources
today. Please note, however, that it is highly recommend that you consult with
your attorneys to advise you on the details of your agreement.
You should be aware that the legal system places a high regard on an individual’s
right to earn a living. Make sure your non-compete agreement will pass legal
scrutiny if it ends up under a microscope.
YOUR NON-COMPETE - BE REASONABLE
What is reasonable? Three major issues often come up when a non-compete is under
scrutiny:
a. the length of the agreement
b. the scope or geographic area
c. whether or not it is too prohibitive regarding options left to the employee
This writer found no evidence of a set rules regarding the length of the non-compete
provision. Certainly the longer the period of time, the more scrutiny your agreement
will draw. A reasonable period of time is highly dependant upon the type of employment,
the applicable industry and state law. The sale of a business may be a factor
and in some cases can command a longer period of non-compete. You attorney should
be able to advise you regarding this issue.
The scope or geographic area cannot be so broad that the employee is unable to
work anywhere. Consider the case of a franchisee who named the locations of all
of the other franchisees of a particular business in his non-compete agreement – this
may be considered unreasonable as they were located in every major city in four
countries, thus effectively preventing the employee from earning a living anywhere
within his language capabilities. Again, the particular circumstances of the
type of employment, the industry and the states involved will dictate what is
and is not unreasonable.
A solid non-compete agreement is a very effective way to protect your business’s
trade secrets. It can also protect you from loosing valuable employees and protect
your company’s confidential information.
WHAT IS A TRADE SECRET?
A trade secret is information that gives your company the advantage competitively
speaking. It is information that is not generally known; it is information that
cannot be readily learned by people outside of your organization; it is information
that if learned by other people could damage your company. Trade secrets can
be techniques, systems, technology, devices, programs, anything that you have
made reasonable efforts to keep secret and that could hurt you if learned by
your competition.
REASON – THE BETTER PART OF REASONABLENESS!
A non-compete cannot be simply for the purpose of punishing an employee or your
competitor – you must have a good reason for either asking or requiring
the employee to sign the agreement and for attempting (even threatening) to enforce
it. Trade Secrets and Customer Lists are two very important reasons for utilizing
non-competes. Make sure that the employee actually has access, or is privy, to
sensitive information, again it might appear as punishment for disloyalty if
you attempt to enforce an unreasonable non-compete so be selective in choosing
the employees you ask to sign the document.
A good non-compete will provide a benefit to the employee for signing it and
promising not to compete against you. Your job offer can be contingent on the
signing and this may satisfy this requirement, certainly monetary compensation
or other benefits in the form of a raise, severance pay, continued employment,
or a promotion may also fulfill this requirement when dealing with an existing
employee.
In summary when considering your non-compete, consider its reasonableness, your
goals for the document, the value of the employee, the training and investment
you have in the employee, and the level and type of information the employee
will have access to.
Consult with your attorneys regarding various state requirements and laws as
some states, such as California, are very specific in their attitude toward non-competes,
going so far as to hold that restrictive covenants in California are completely
void, subject to very limited exceptions. Make sure you are in compliance with
your state regulations at all times.
When you consider the amount of damage that can result from employee sabotage
you could be tempted to “tighten” your agreement. Just make sure
that in all aspects you observe the rule of reasonableness and make sure that
you have a valid reason for requiring the document. It probably doesn’t
pay to do it any other way, especially if you end up with a document not worth
the paper it is printed on.
Non-Competes from the Employee’s Perspective.
Click here to read >>
About the author:
Sarah Hightower Hill is CEO of Chandler Hill Partners, the Nation’s leading
career search specialists. For nearly 15 years, Sarah Hightower Hill has been
successful in helping mid- to high-level executives and professionals outperform
the competition.
Her clients have included executives, managers and support personnel, as
well as employees from both public and private sectors across an array
of industries.
Her groundbreaking work in the career development field has resulted in
targeted, solution-oriented services that deliver the most effective and
fastest search cycle times.
Sarah is also the architect and driving force behind Chandler Hill Partners’ community
service program “Find Your Future” -- a two part strategy helping
motivate high school students to stay invested in their education while
helping drop outs to find career opportunities. |
Other articles by Sarah Hightower Hill include:
Some Fees are Worth Every Penny
Non-Competes – To Sign or Not to Sign?
Non-Competes – Should We Or Shouldn’t We? An employer’s perspective
Embellished Resumes - A Real Problem
Body Language Can Make or Break Interviews
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