lot of business owners call us for advice on non-compete agreements. They want to prevent departing employees from competing. There are a lot of ways employers can prevent employees from going to competitors, below we outline six:
1. Make Your Company’s Non-Compete Agreement More Enforceable by Reducing its Scope.
When it comes to non-competes, the narrower it is, the more enforceable it is.
LIMIT THE GEOGRAPHIC SCOPE.
If your business is regional, one way to improve your non-compete is to narrow the geographic scope to only include the necessary mile radius, and no more, as opposed to being nationwide or even worldwide.
NARROW THE DEFINITION OF A “COMPETITOR.”
Most non-competes are ridiculously overbroad because risk averse people are afraid that the scope of their business might expand to an area not contemplated by their non-compete. Ironically, this approach increases the risk that the agreement is unenforceable as over-broad. The better approach is to be practical. As a business owner you know what businesses really compete with your business. By being specific, you can narrow the definition of a “competitor” and make your non-copmpete more enforceable as a result. And, if your business does expand into an area not contemplated by your existing agreements – simply issue new agreements at the time of expansion.
NAME YOUR COMPETITORS.
By limiting the non-compete to just a few, specific, companies that really matter, you make it much more likely that a departing employee will not work for those specific companies. And, as above, if your competitors change, update your agreements accordingly.
2. Tie Future Payments to Non-Competition.
It is very hard to sue a former employee for breach of a non-compete and win (let alone recover anything). But it is very easy to accuse an employee of breach and stop payment. By making future payments (e.g. deferred compensation, vesting, options, etc.) contingent on non-competition, you financially incentivize the former employee to comply.
3. Pay Your Employees During the Non-Compete Period.
This is also known as “garden leave.” One argument employees make to dispute their non-compete is that they cannot make a living because of it. If the employee is being paid during the non-compete period, that argument goes away. Plus, there are a few tricks employers can pull to give themselves more power (i.e., employer decides whether and for how long to enforce a non-compete).
4. Use other restrictive covenants.
Well drafted non-solicit and non-disclosure agreements can accomplish everything you really need from a non-compete. Realistically, if a former employee goes to a competitor, but does not take your clients, people or secrets … who cares? What really matters is that the employee does not harm your business. Competition is unsettling, but the real problem is when the employee harms your business by taking your clients, people or secrets. Non-solicits and non-disclosure agreements offer meaningful protections for employers.
5. Write a ridiculous non-compete.
People are generally risk-averse, and the thought of being sued can be terrifying. Sometimes an ounce of prevention is worth a pound of cure, and an outrageous non-compete, with the most punitive language possible, may convince a departing employee to avoid working for a competitor.
6. Sue someone.
Talk to a lawyer. If you’ve got a case – sue. Sue the departing employee (and their new employer), and let it be known throughout your company that you are doing so.
Questions, concerns? GIve us a call or e-mail us. We are standing by.