In many businesses non-competes are a necessary evil. It is inevitable that at some point employees will leave. Whether they move on after a few months or they stay until they retire, eventually every employee will leave. The loss of certain key employees to a competitor can have a detrimental impact on a sales intensive business.
In certain cases, a non-compete will function to keep employees in your organization. More often, a non-compete serves as protection for confidential and proprietary business knowledge and to prevent unfair recruiting.
Here are some of the key subjects to address in an effective non-compete.
Details matter
As you consider your non-compete agreements, think about the biggest threats to your company and how a non-compete can help you mitigate that risk. Consider factors such as:
- Current competition
- The protection of confidential information
- Distance from other companies
- Similar industries
- Likelihood employees will start their own similar venture
Your non-compete should be specific and necessary to protect your legitimate business interests. Consider what distance and timeframe make the most sense to both protect your business and still allow your employees to pursue other gainful employment without damaging your business.
Do you need additional consideration?
If you are adding a non-compete for your current employees, you will need additional consideration for the contract to be enforceable. Compensation does not always have to be more money. It can include meaningful incentives which your existing employees will not receive unless they agree to execute a non-compete such as:
- Extra vacation days
- Meaningful Title or responsibility changes
- Alternative schedule
The midstream non-compete will not be enforceable unless there was a meaningful bargain for exchange and the employee receives a tangible new benefit other than continued employment. Make sure the employee fully understands the contract and has an opportunity to have his or her attorney review it before they sign.
Not all Non-Competes Are Created Equally
Employees and employers often mistakenly believe all non-competes are uniformly treated and interpreted in the same manner under the law. Nothing could be further from the truth. Each non-compete situation is very unique and fact specific. Therefore, consult with competent counsel before taking any action concerning your non-compete agreement.