Wednesday, May 17, 2017

Is your non-compete agreement killing a fly with a sledgehammer?

At least half of my legal practice is serving as outside labor-and-employment counsel for small to midsize businesses. And, increasingly, much of that practice is consumed with drafting post-employment covenants, sending cease-and-desist letters to employees who are in violation of said covenants, or filing lawsuits to enforce said covenants; or, conversely, advising a business whether it can hire an employee with a non-compete agreement, responding to cease-and-desist letters, or defending a lawsuit seeking to enforce said covenants.

When a client calls me to draft a restrictive covenant agreement, I must work with that client to determine how wide of a net they need to cast (or how big of a hammer they have to swing). Knowing that most courts only enforce such agreements as necessary to protect an employer’s legitimate interest, I need to determine the scope of the legitimate interest the employer is trying to protect, and is entitled to protect.

  • Are they worried about a theft or disclosure of confidential information? In that case, maybe a non-disclosure agreement is all they need. 
  • Are they worried about the employee poaching customers, employees, or vendors? Then a non-solicit is in order (plus the non-disclosure). 
  • Or, is what the employee provides so unique in nature that the business genuinely will be irreparably harmed by the employee jumping to a competitor. Then, and only then, is a broad non-competition agreement called for (plus the non-disclosure and non-solicit). 

I raise this issue after reading Your Non-Competes Aren’t Saving Your Business, They are Destroying Lives, written by my friend Suzanne Lucas (aka Evil HR Lady). Suzanne argues that “non-compete agreements should be limited to people who could damage your business by going elsewhere. … A non-compete for any other person should be extremely narrowly tailored and probably non-existent.”

Suzanne is 100 percent correct. Employers, use some discretion and common sense. Narrowly tailor your restrictive-covenant agreements to the specific interest(s) you are trying to protect. And, if you don’t have such an interest, forego the agreement altogether for that employee or group of employees. Otherwise, you will spend gaggles of money attempting to enforce an unenforceable agreement. While that strategy is great for me, it’s terrible for your business, which should be in the business of making money, not throwing it away chasing a fool’s errand.

* Photo by Russ Hendricks via Flickr and [CC BY 2.0]