Ask Andi: Can you talk about non-compete deals? In the past year, I separated from a company, to build my own business with new clients. However, I get calls from former customers who are unhappy. But I can’t help them. I am bound by a non-compete agreement I signed when I first took the job.
A non-compete deal – or agreement – is a contract that prohibits an employee from working for a competitor. Let’s take a look at a few items. Firstly, what is the real problem here? Further, what are good non-competes all about? What should employees and employers consider when entering into non-compete agreements, and when separating from each other?
The real story behind non-compete deals
What is the real problem with this situation? In my opinion, it is that the original employer’s customers are saying they don’t want to work with that company. The non-compete agreement is masking a problem and diverting the owner’s attention away from dealing with the underlying issues of customer loyalty and satisfaction.
As owners, when our customers say they don’t want to work with us, we have bigger problems than enforcing a non-compete. If this owner is on the ball, he or she will set in motion a program to personally contact every customer, find out what they like and don’t like about the company, and what the company could be doing better. He will then put into action a detailed program to address those concerns. He’ll follow up to ensure that customers are more satisfied.
Prohibits from pursuing similar employment
A non-compete probably won’t hold unsatisfied customers in the fold for long. Smart customers can always find other options, and this employer’s loss of a key employee will probably force their hand. If he doesn’t know what to do, he would be well advised to find someone to help him figure it out, and quick. He needs to focus on satisfying customers, more than on enforcing non-competes.
Competition is a reality for most businesses, and it is logical to assume that the people who know us best, our employees, may turn out to be our greatest source of competition in the future. It is also logical to assume that companies will do whatever is reasonable, and sometimes seek to do what is unreasonable, to protect their interests, including limiting competition as far as possible.
Eliminating competition is not considered a legitimate use of a non-compete. But protecting a business for a limited set of conditions – geography, time, and scope – is appropriate. In this case, the employer may get away with enforcing the non-compete, because the agreement specifies a timeframe of 2 years or less, and bars competition only in settings where the employee previously worked. There are other suppliers of similar services in the area, so customers do have options. And, the agreement does not prevent the employee from seeking out new customers, from sources that the employee and employer did not have in common.
Largely dependent on state laws
What are non-compete and non-solicitation agreements? In the simplest form, they are documents in which an employee agrees not to compete with a former employer. Or not to solicit business via contacts made while working for that employer. When considering a non-compete agreement, be sure that it is:
- Efforts: Limited in scope to efforts the individual would have knowledge of or be involved with during employment
- Geography: Limited to geography in which the company is already doing business
- Length of time: Limited in the length of time -competitive prohibition of no more than 1-2 years is generally accepted
- Fair to both employer and employee. Give the employee adequate time to review the document prior to signing. And freely entered into the agreement in trade for some betterment. A salary offer is at the time of hiring or time of promotion
- Do not unnecessarily interfere with the public interest. If this employee is no longer available to the market, the market must still be able to get what it needs. Removal of the employee from the market cannot unnecessarily inhibit competition in the market
- Drafted, reviewed, and approved by a qualified attorney for both parties. So that it stands up in court and accurately represents the intentions of both employer and employee
Looking for more information?
You can find it on the internet, and at Amazon.com. Just type in non-compete, and you’ll get plenty of options. Whatever reading you choose to do, be sure you get qualified legal advice to help you.
