To prevent your most valued employees from joining a competitor or setting up their own firm should they leave your company, secure non-compete agreements. Effective non-compete agreements should state a specific period of time and potentially a particular geographic region plus specific details about what activities are to be restricted.
In addition to protecting your business from potential competition, an agreement that dissuades current employees from competing could also help to retain key people by giving them more reason to stay (or less reason to leave). This is especially true when combined with a deferred compensation or alternative compensation package, such as a SERP or a form of equity participation.
Be Careful and Thorough
Non-compete agreements are among the most litigated issues in employment law. To reduce any chance that the agreement could be challenged in court, take steps to know your state’s laws and work with an expert attorney to craft a tight agreement that protects your interests and is seen as reasonable by the court. Here are some tips:
- Know your state’s laws and the norms on non-compete agreements and their restrictions. In a case where the state where your employee works differs from that of the business’s headquarters, find out which is most relevant.
- Have the employee sign the agreement when hired. That will make the agreement easier to enforce and would preclude the business from having to provide an additional well-documented benefit, such as a raise or promotion, to the employee for signing.
- Keep the agreement reasonable. As the employer, the burden will be on you to show that a non-compete restriction is reasonable and necessary to protect your interests. Are you concerned about the employee possibly divulging a trade secret? The details matter: include the duration, geographic scope and nature of the restrictions, and the business need for the agreement.
- Understand your enforcement options. The first step would typically be to contact the former employee to let the person know you believe he or she is violating the agreement. If you can’t resolve this issue privately, you could file a suit for an injunction.
Consult With an Expert in Employment Law
As a business owner, you aren’t expected to be an expert in employment law. The devil is in the details here. Be sure to work with an experienced attorney who has specific expertise in this area.