Monday, March 18, 2024

It’s past time to self-regulate your use of noncompete agreements before the government does it for you

Boston Beer Co., the brewer of Sam Adams and other craft beverages, is taking heat for its overuse of noncompete agreements. In a recent article, the Boston Globe cites examples of several former lower-level Boston Beer employees forced out of the industry they love because of the noncompete agreements their former employer forced them to sign at their time of hire.

Legally speaking, to be enforceable a post-employment restrictive covenant must be narrowly tailored by time, geography, and a reasonable business interest worthy of protection. Yet, like the Boston Beer example, all too often employers require many too many employees to sign overly broad and overly restrictive agreements. It's bullying and a scare tactic. It's also legally unsupportable. And it's also why the federal government and many states are looking at regulatory and legislative solutions to limit their use.

Employers should not wait for the government to tell them what to do here. Instead, I suggest that employers deploy commonsense discretion with a tiered approach to the use of post-employment restrictive covenants:

Tier 1: Are you worried about protecting confidential information? In that case, maybe a non-disclosure agreement is all you need.

Tier 2: Are you worried about an employee poaching your customers, employees, or vendors? Then a non-solicit is in order (plus the non-disclosure).

Tier 3: Is what an employee provides so unique in nature that you 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).

In other words, 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 oodles 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 or bullying your employees.