Published December 2010
Many small businesses struggle to determine whether or not non-compete agreements are worthwhile to use. Such agreements are employment contracts designed to restrict an employee’s right to start a competing business across the street or to take your clients, other employees, or even your training with them when joining your competition. Depending on how the agreements are written and applied, they may help add protection to your business or simply add headaches. From an HR perspective, be sure to think about the following six tips:
What are the appropriate restrictions? Specifically pick the restrictions that make most sense to adequately protect your company. The most common types include a non-compete, a client non-solicit, an employee non-solicit, and / or non-disclosure.
What is the scope of the restrictions? In some states, overly broad non-compete conditions can be detrimental against employers because courts will refuse to recognize the overall agreement even if the clause in question is only slightly too broad. Also, take into account the location where the employee may be working.
What is the nature of the job position? A non-compete agreement should protect the company’s legitimate interest, such as confidential information. Tailoring the duration, scope, and geographic restrictions of the covenant to the particular position and circumstances of the employee (or category of employees) is likely to enhance the enforceability of the agreement.
How is confidential information secured? Take reasonable measures (e.g. password protect computers) to identify and communicate with employees as well as protect what is considered confidential. Upon termination, require employees to return any company document or information, including devices (e.g. laptops or cell phones) that may contain confidential information.
What is the duration that the agreement can be enforced?In the event of a breach, include language (if allowable) that can automatically extend the duration of the non-compete agreement.
Is the non-compete agreement complete? Simply, after all the hard work put into creating, reviewing, negotiating (perhaps), and then finalizing the agreement, make sure that it is clearly signed and dated.
Some small businesses may be confused or hesitant in using non-compete agreements. To help in the process, an experienced HR professional can provide cost-effective and highly knowledgeable guidance. An attorney may also help to review the “final” version just before you hand it to your employee. Regardless, taking the early steps in determining whether or not non-compete agreements make sense for your business will help you gain a better understanding of how to take better care of your business.