Protect Your Company When Employees Leave: Non-Compete

It’s likely that your key employees are privy to many
of your company’s innermost secrets. They probably have
access to your customer and supplier lists. They know
about your production methods, your salary schedules,
your sources of financing and hundreds of other
important details of your operation. Also, they may
have access to trade secrets owned by your company,
such as patents, proprietary methods of work and
others. No less important, you may have invested months
or even years to train them.

by Jeffrey Moses

All this makes your top people extremely valuable to
your competitors. What’s to stop an employee from
leaving your company and joining one of your archrivals
and taking with them everything they’ve learned?
Nothing, really, unless you establish non-compete
agreements that set parameters on what your employees
can and cannot do after leaving your company.

The best time to discuss non-compete agreements with
employees is at the time of hiring. You can even make
hiring contingent upon signing the agreement. This
ensures that employees realize from the beginning that
they are working within certain restriction.

If you don’t have non-compete agreements in place
currently and wish to establish them, it may not be
necessary or advisable to ask every employee to sign an
agreement. Decide which of your employees truly has
information or experience that could damage your
company if they left and started working with a
competitor. Write up the agreement (as discussed below)
and talk about the importance of the agreement with the
key employees you have designated.

The most important aspects of a non-compete agreement
are:

* Reasons for the non-compete agreement (the employee’s
key position in the company, access to trade secrets,
duration and expense of training and potential
financial damage to your business)

* A specified length of time during which an employee
cannot begin work for another company in your industry
after leaving your employ (up to two years is standard)

* A specified length of time during which an employee
cannot open his or her own business as a competitor of
your company (up to two years is standard)

* A list of companies and/or types of industry for
which the agreement applies (this list should not be
too broad)

* Optional: specifying that an employee cannot work for
a competitor as an independent contractor

Non-compete agreements can be tailored to individual
employees. Non-compete durations, types of industries
and other aspects of the agreement should make sense
and be reasonable, based on the employee’s position,
experience and importance to your company.

Which employees should be asked to sign non-compete
agreements? In general, those who are involved in
creative work (design, engineering or software
development), sales, accounting/clerical work (those
with access to confidential information), department
heads and others working with confidential information
or who have inside knowledge of proprietary
information.

Note: An added benefit of non-compete agreements is
that you will lose fewer key employees. If they cannot
immediately go to work for someone else in the
industry, there is less incentive to leave their job.

Non-compete agreements should be adapted to the state
in which your company resides. Also, non-compete
agreements may not be legal in all states. Work with
your attorney and business adviser to make sure that
your agreement will stand up in court, includes the
level of protection you feel you need and is tailored
to the employees you included.

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