The proliferation in non-competes used for everyone from yoga instructors to camp counselors was fodder for a New York Times Sunday article this summer. At around the same time a client for a $20 billion company was contemplating implementing non-competes and the impact on its culture. The internal discussion seemed thoughtful and far from the overzealous trend.
A non-compete can be an effective and powerful tool in the right circumstance, but it has consequences and is not right or necessary in every instance.
Here are 5 things to consider before you copy that form from the internet.
Will you lose key employees due to implementation?
Some employees simply refuse to sign them. This may surprise you as the employer always has the trump card; you do not have to employ the person. That said, the very reason you want the non-compete is to make it difficult for valued employees to leave. So what do you do if they refuse to sign?
You may be in a situation where your most lucrative sales person says she’s leaving with all of her business. Having a workforce with a holdout is untenable. Are you willing to let the most valuable holdouts go?
Do you need a non-compete?
Consider what it is you are trying to protect or avoid. Will there be significant harm to the business if certain employees go to a competitor? If so, consider limiting the non-compete to those employees – such as key sales executives.
Would another tool work better?
In some cases a non-solicitation or non-disclosure agreement would be a better choice. If you want to prevent the non-solicitation of your customers or employees rather than fully limiting competition, enforcement in many jurisdictions can be easier and accomplish the goal for the appropriate job/category. Likewise, if you are more concerned about employees using or discussing confidential information, use a non-disclosure agreement rather than limiting competition. It can also be easier to internally implement.
Is it expected in your industry?
In many industries, non-competes are commonplace. Healthcare, technology, freight forwarders and sales personnel are frequent signers and non-competes tend to be expected. That said, they do not need to cover every employee in the business from receptionist to janitor. Further, if the industry is not one where non-competes are as common and may be of questionable necessity (yoga instructor?) they should be thoughtfully written, if at all.
Remember, a non-compete is a restraint on trade and judges even in the states most likely to enforce non-competes are reluctant to prevent honest employment that doesn’t truly infringe. You should also consider whether nationwide coverage is necessary for every noncompete – as not every business is national in scope.
Will you and can you enforce a non-compete?
Enforcing a non-compete requires diligence, expedience, investment and commitment. In other words, once you implement the non-competes, are you willing to go after those that breach them? Your employees will know if you do. Your reputation will be set early. One of our clients goes after every employee and preferably in friendly jurisdictions – an effective approach. Some states simply do not enforce non-competes (California) and other barely do (Florida). That said, without a prompt aggressive responses, the non-compete becomes a deterrent with far less power.