Do your non-compete agreements help or hurt your employees?October 15, 2014 - By: Jason Carney
It’s every employer’s worst nightmare: An employee leaves the company and immediately joins a competitor’s team. Are they sharing industry trade secrets? Are we going to lose our clients to a competing company? Will they exploit our weaknesses?
One solution to this situation is to use a non-competition agreement with your employees, meaning an employee agrees not to join or create another company that is in competition against the employer with certain boundaries and limitations. This prevents an employee, upon termination or resignation, from giving a competitive edge to a competitor by stealing clients or exploiting confidential information about their former employer’s operations.
One of the biggest problems with these agreements is that they can be overly broad. For example, if an employer has every employee in the organization sign an agreement preventing them from working for a competitor for three years, it can be considered too broad by the courts and the document can be thrown out. The same goes for agreements that say employees can’t compete within a very broad geographic range. Employees generally have the right to work in their chosen profession.
A few key points that should be considered when crafting a non-competition strategy:
1) What are the organizations protectable interests?
2) Is the agreement reasonable in time and scope?
3) Is enforcement of the agreement necessary to protect the former employer’s trade secrets?
4) Does the agreement prevent the employee from working in the employee’s chosen profession?
5) How could the organization be damaged by an employee going to work for a competitor?
At Worksmart, we work with our clients to educate them on their non-competition agreements by simplifying the documents and making it easier to understand. We can modify an employer’s existing documents and have attorneys on hand for legal consultation. Our extensive research allows us to understand our client’s industry and find what form of competition could harm that particular business.
We create new documents with language that is precise, reasonable and effective, but not so limiting that they can’t be easily legally defended if needed. The ideal agreement must be specific enough that it defines protectable interest, such as existing customers, existing employees and specialized information, but does not include general knowledge. These agreements usually include: limited geography, a reasonable time limit (1-2 years) and prevention of specialized information about the company, existing employees and customers.
However, a non-competition agreement isn’t always a suitable solution for every employee. Typically there are no real benefits for employees like receptionists to sign a non-comp. In many cases, we recommend a simple confidentiality agreement that states employees cannot hand out sensitive information. Confidentiality agreements are much simpler and make it easier for the company to prevent leaks of sensitive information.
While non-competition agreements can be complicated and intimidating, there is no reason to face them alone. Having a PEO like Worksmart on your side is essential in making sure that all your bases are covered and that your company is well protected – no matter what the situation may be.