Use Noncompete Agreements To Protect Your Business

Q: One of my former employees has launched an online business very similar to mine and is contacting my clients and trying to steal their business from me. Do I have any legal recourse against him? -- Brad J.

A: I hate to break this to you, Brad, but unless this former employee signed a noncompete agreement while on your payroll, there is probably very little you can do to stop him from wooing your customers. You should discuss the situation with your attorney, but unless this person is also breaking the law in some other way (violating your copyrights or trademarks or using stolen trade secrets, for example.) Your attorney will probably concur with me.

Renegade former employees riding the free enterprise wave is one reason noncompete agreements are gaining in popularity among employers who hope to use them to help protect their traditional and online businesses from competitive threats launched by former employees. Many employers are now demanding that key employees sign noncompetes as a stipulation of employment. While signing noncompetes usually doesn't sit well with employees who view them as potential roadblocks to their upwardly mobile career path, many businesses will not hire a key employee without his or her signature on the dotted line.

A noncompete agreement is a formal contract between you and your employees in which they promise not to use information or contacts pertinent to your business in a competing situation. In other words, they agree not to take everything they learn working for you and put it to use for someone else. This could mean going to work for a competitor or starting a competing business of their own.

While not popular with employees, noncompete agreements are a good way for employers to keep key employees on the payroll and protect the company's proprietary information. That said, do not go overboard with noncompetes: not every employee should be required to sign one. If an employee does not have access to sensitive information, customer or accounting data, or is integral to the overall success of your business, there is no need to have them sign a noncompete. The janitor, for example, poses very little threat to your business if he gets a job with a competitor. Your sales manager, on the other hand, can devastate your business by hooking his wagon to a competing horse.

Which employees should sign noncompete agreements? While the prerequisites vary from business to business, the following is a good general list. The term "employees" represents executive level, management, supervisory, and non-management personnel relative to that example:

* Employees involved in research or product development.

* Employees involved in the design, fabrication, engineering, and manufacturing process.

* Employees who service products made and sold by your company.

* Sales and service employees who have regular contact with customers or sensitive customer information.

* Employees with access to sensitive business information or trade secrets.

* Most importantly, employees who have sufficient information about your business that would allow them to start a competing business.

Most business experts agree that noncompete agreements are generally a good way to protect your business. The downside is that noncompete agreements are often difficult to enforce and in some states, may not be enforceable at all. Many state courts have ruled that noncompete agreements are too restrictive on an employee's right to earn a living.

In California, for instance, noncompetes are generally only enforceable in connection with the sale of a business and not for employees. In Alabama where I live, noncompetes are generally enforceable in only two contexts: the sale of a business and in connection with employment - but even then the enforcement requires that there be a valid interest worthy of protection. Some states require that the noncompete be signed at the beginning of the employment relationship and will only consider the enforcement of a noncompete signed after the initial employment date if the signing of the noncompete was accompanied by a promotion, raise in pay, or other event that elevated the employee to a more important role within the company.

To be enforceable, noncompete agreements must be reasonable on three accounts: Time, geography and scope. Regarding time, you can't restrict someone from competing with you forever, so one to three years is the accepted time period for most noncompetes. As to geography, you can enforce restriction in the general area where you conduct business, but you can not enforce the restriction beyond those boundaries. And for scope, the agreement can restrict certain actions on the part of the employee, but can't be so generally restrictive that the employee won't be able to earn a living working in the same industry in a noncompetitive position.

One interesting thing to note: noncompete agreements are not enforceable against certain "professionals," like doctors, CPAs, and lawyers (who do you think writes all those noncompetes).

At this point, Brad, the best thing you can do is contact your attorney to see if you have other grounds for suit, then contact your customers and let them know what's going on. Explain the situation regarding the former employee, but do so calmly and resist the urge to tell them what you really think of this guy. Showing your anger to the customer is not going to help you keep their business. Reaffirm your relationship with the client, tell him how much you value his business, remind him of your track record and level of service, then ask one simple question: What can I do to make sure your business stays with me?

Small Business Q&A is written by veteran entrepreneur and syndicated columnist, Tim Knox. Tim's latest books include "Small Business Success Secrets" and "The 30 Day Blueprint For Success!" Related Links: http://www.smallbusinessqa.com http://www.dropshipwholesale.net

---

Are Your Marketing Pieces Up to Date?

The other day someone asked me for one of my... Read More

Three Business Lessons From The US Postal Service

There was a buzz in the air recently about the... Read More

Another Use for Meetings

Every meeting is a laboratory where you can observe and... Read More

The Art of Motivation and Need Fulfillment

Industrial/clinical psychology and applied psychiatry have made tremendous strides in... Read More

Introducing the 15 Frameworks of Successful Self-Employed Professionals

A framework is a way of thinking, a point-of-view, a... Read More

The Seven Cs: Partnership Danger Signs - Competitive, Not Complementary Action

A series of articles exploring the seven critical areas that... Read More

Cold Water Comments - What They Are and How to Manage Them!

Cold Water Comments - What They Are and How to... Read More

Managing Creativity - An Oxymoron! Not

Interrogated on a beach in Barbados by friends insistent that... Read More

Increasing Employee Retention Through Employee Engagement

You've seen it happen many times. An organization that provides... Read More

Is Your Employee Newsletter Management Propaganda?

It should not be. If it is an effective newsletter,... Read More

Critical Success Factors - Next

The Critical Success Factors Focusing on the... Read More

What One Thing?

A few weeks ago I asked my readers what the... Read More

Are You Ready to Sell Your Business

Make Sure You Understand Your Motivation for SellingAre you thinking... Read More

Ten Secrets of Super Successful Meeting Planners

Whoever said that being a meeting planner was easy, lied!... Read More

Eight Key Steps to Building B2B Major Account Client Alliances

Audiences who saw the fabled Broadway musical, Chorus Line, marveled... Read More

Effective Email Communication

Email, when used properly, can generate additional direct sales and... Read More

The Comfort Zone

The Comfort Zone I... Read More

Tales from the Corporate Frontlines: Workplace Ethics: Reaching the Highest Standard

This article relates to the Ethics in the Workplace competency,... Read More

Manage Your Time - Save Your Business.

If you work from home, chances are you already know... Read More

Top 7 Methods to Empower Employees

How many times have you asked someone to do something... Read More

Project Managment: Land the Plane Stop Doing and Start Succeeding

We all spend time on planning vacations. If it's not... Read More

Weaknesses of Wishing

When you're starting a business, you might wish for a... Read More

Dont Take New Hires for Granted

Hiring good people is only half the battle. The other... Read More

How To Hire Superstars

Can a person's behavior and values really determine if they... Read More

Cultural Awareness - an HR Perspective

The use of cultural awareness training has increased rapidly in... Read More

Five Principles of Effective Communication

The problem with communication is the illusion that it has... Read More

Smart Hiring: What Makes the Right Employee?

Good hires do not happen by accident or luck. In... Read More

Preparing For ISO 9001 2000 Registration

The steps need to be taken to prepare an organization... Read More

Meeting Your Meeting Expectations

"To get something done a meeting should consist of no... Read More

Diversity in the Workplace: Benefits, Challenges and Solutions

Workplace diversity refers to the variety of differences between people... Read More

Write Winning Proposals For Venture Capitalists

You need to secure money for your project. You visit... Read More

Eight Skills of Highly Successful Consultants

With deference to Dr. Covey and his very popular Seven... Read More

Warning! Meeting In Progress; May Be Hazardous To Your Career

There ought to be a sign posted on every closed... Read More