Employee turn-over exists in every industry, there’s no way around it; and it’s no mystery that the competition is out there looking to scoop up your talented and knowledgeable employees. Non-compete agreements exist to protect the company’s confidential information, strategic plans and customer relationships in the event of an employee leaving with a wealth of company knowledge to share.
Employing a non-compete agreement doesn’t come without its share of pros and cons. There are a number of factors to think through before you decide what’s best for your business:
Employee Retention — Often times as part of a larger employment contract or offer, non-competes require that your employees refrain from working for competitors, typically for a year after they leave, and sometimes within a specified vicinity in relation your company. Your employees may be more hesitant to entertain certain outside recruitment efforts when they know non-compete terms have been established.
Exiting employees — Non-compete agreements let exiting employees know their boundaries when they go to work for another employer. If you have an established non-compete agreement be sure to discuss the terms in the employee separation process. Most people won’t remember everything they signed when they were hired. When they decide to move on years down the road, they may have completely forgotten the terms they agreed to when hired. Make sure you are reminding your exiting employees of the agreement by providing them with a copy of the signed document and discussing any post-employment restrictions and obligations.
Specificity — A well written non-compete will have specific terms. The more specific the agreement, the easier to understand and enforce. Fear of litigation alone may be enough to enforce the terms for some employees. You should create a plan for enforcing your non-competes in the case the company suspects a violation.
Fairness — It’s tough to write a fair non-compete agreement. Unreasonable demands might make it difficult to enforce one. Think this through — you may be asking for violations. Instead, try to place reasonable limitations dealing with time and geographical area — don’t restrain work anymore than necessary to protect your business interest. Don’t try to prevent employees from making a living in the future.
Enforceability — State, not federal, laws govern the terms of non-compete agreements. Historically, non-compete agreements have been disfavored by the courts in many states, but not all. It’s wise to check with your attorney to see how non-competes are usually handled in your state. Also, if you have employees in more than one state, you may need several versions.
Recruitment — If you are expecting your new hires to sign a non-compete, it should be communicated to candidates early on in the hiring process. Be cautious not to create a bait-and-switch scenario or have the deal fall through at the end because of a surprise non-compete agreement. Know that by having a non-compete, you could lose good candidates who are unwilling to sign one.
Some state lawmakers are pushing for limits on non-competes arguing that they hurt innovation and economic development. Courts are often reluctant to enforce a non-compete that is so broad and restrictive that it keeps people from their livelihood. While non-compete clauses must protect the business interests of the employer, the more enforceable agreements will try to balance the company’s right to protect its assets with the employee’s right to work.
Need more guidance on whether or not to utilize non-compete agreements in your workplace? HR Knowledge’s can help you decide what’s in the best interest of your company and answer any questions you may have about non-compete agreements.
About HR Knowledge
Founded in 2001, HR Knowledge, Inc. is a privately funded company providing integrated outsourced HR services tailored to our clients’ needs. Our full array of offerings includes managed payroll, employee benefits administration, and HR consulting and support services, such as training, compliance, custom-built software solutions, and Hiring Process Management™, our comprehensive recruitment service that takes you from finding to onboarding new talent. Our major markets are fast-growing small- and medium-sized businesses, many of which are venture-capital-backed; foreign companies expanding into the states; and charter schools. Partnering with HR Knowledge can reduce your administrative costs, minimize your legal risk, help you find and develop talent, and alleviate the HR burden so that you can focus on your core business.
This content is provided with the understanding that HR Knowledge is not rendering legal advice. While every effort is made to provide current information, the law changes regularly and laws may vary depending on the state or municipality. The material is made available for informational purposes only and is not a substitute for legal advice or your professional judgment. You should review applicable laws in your jurisdiction and consult experienced counsel for legal advice. If you have any questions regarding this blog, please contact HR Knowledge at 508.339.1300 or email us.