Considering non-compete agreements? Put them in place before hiring

Recently, Apple brought a case against a manager who allegedly established a competing business during company time. Most company owners would agree that’s not an acceptable way for managers to spend time at work.

What, if anything, can a company do to prevent those situations, and what can they do if a situation like that arises?

Once a situation arises where a company suspects someone will take, or is taking client contacts, employee lists or company trade secrets with them, you may be too late to impact the situation. A decision to use non-solicitation, non-compete or confidentiality agreements should be put in place long before the company needs one.

Agreements to "not compete" or "not solicit" are best implemented when an employee is being hired or promoted into a position that warrants that type of agreement. Base them on types of positions or employee groups, such as those who have access to specific information that could be used to damage your business. It’s important to not single out individual employees who an employer doesn’t trust, for whatever reason.

Non-compete agreements are typically required if the company is offering the employee something of value in return, such as a job, a promotion, or a raise. If you implement such agreements after employees are hired, you can ask the employee to sign it in exchange for a bonus, for example, but continued employment can’t typically be based upon the employee signing it once they’re hired.

Why have a non-compete agreement?

Many companies use confidentiality, non-compete and non-solicitation agreements to protect their company from losing resources, clients, or employees at the hand of a current or former employee. While such agreements used to be strictly for managers and executives, now many others are being asked to sign them as well, according to information from the University of Michigan Ross School of Business.

One report states that one in five employees in the U.S., or about 30 million people, are now covered by a non-compete agreement. Here is information about the various agreements:

• Confidentiality agreements require employees to not share confidential information outside the organization.
• Non-solicitation agreements prohibit someone from soliciting employees and clients after termination for a specific period of time.
• Non-compete agreements require an employee, or former employee, not to participate in a business in direct competition with the employer during or after employment. They are typically limited to a specific geographic area and are for a limited amount of time. For example, an employee may be limited to not working for a direct competitor within 120 miles of their employer's business area for one year. Such agreements would also be intended to stop an employee, or former employee, from forming business that would complete with the employer.

While this sounds like a perfect solution to all of an employer’s concerns, there are some things to be aware of.

Non-competes and confidentiality agreements can be tough to enforce

These agreements are difficult to enforce, as judges often won't limit a person’s ability to earn a living. Also, some local laws may have additional restrictions about using them.

If you plan to implement such agreements, check your local laws and consult with your attorneys and HR specialists to make sure you’re in line with the applicable laws when drafting these documents.

Even in California, which tends to offer employees the opportunity to leave to compete, the Apple lawsuit against the employee who allegedly developed a competing business on company time is being allowed to proceed.

Can the experts at BCN Services help you as you consider non-compete agreements? Contact us for assistance.