Small Business Digest Header Icon   •    •    •    •    •    •    •  
Small Business Digest


  
    July-2017
 
HOME CURRENT ISSUE SUBSCRIBE FREE RSS NEWS FEED SAMPLE NEWSLETTER BUSINESS RADIO ARCHIVES
 
   

Protect The Company’s Competitive Advantage with Non-Compete Agreements

Small business owners and executives have plenty of policies and procedures to worry about, but among the potentially detrimental is company policy related to whether or not a departing employee can go to work for a competitor.

Presumably, the company’s direct competitor will now reap the benefit of the many hours and significant financial commitment the business expended.

According to Peter C. Vilmos, a partner at Burr & Forman LLP, the company might ask: “What can I do?” In many circumstances, the company best business move is to protect the core businesses’ interests with a carefully crafted non-competition agreement.

In the real world, employees leave for new positions every day.

They pursue opportunities at other companies. They perceive opportunities to start companies of their own. They move on.

Some states also require that the courts interpret non-competition agreements in favor of the employee in circumstances when the agreement is vague or missing terms. Even when parties are careful to define terms in a non-competition agreement, contracts in many states cannot confine future employment beyond the statutory guidelines, nor are non-competition agreements immune from legal challenges regarding their breadth, their validity or their applicability to particular circumstances.

For instance, Vilmos cites Florida, where the legislature has created a statute that specifically defines the basic structure of contracts that Florida law allows to validly restrain trade. Key among the allowed restraints of trade are non-competition agreements and limitations on the use of a company’s trade secrets after an employee leaves the company

Nonetheless, thoughtfully crafted non-competition agreements can significantly help a business retain key employees, or – at the very least – make it far more difficult for departing employees to immediately join a competitor or start a competing business.

 As in most contracts, the more specific the limitation (and the more reasonable the limitation relative to the possible damage a departing employee might cause the companyr business), the more likely a court will uphold the contract.

If, for instance, the company business is confined to a particular county, then restricting a departing employee from working in an entirely different state makes little sense. After all, how would that departure negatively impact the company business?

So take care to have the company attorney tailor the company’s non-competition agreement in a manner that reflects the company’s business and that provides the company the protection the company deserve for those inevitable situations when an employee critical to the company bottom line decides to see if the grass is greener elsewhere.

If keeping critical employees around makes sense to the financial health of the company, consider hiring an attorney familiar with drafting non-competition agreements. Under certain circumstances, it could literally save the company business.

Peter C. Vilmos can be reached at pvilmos@burr.com.


© 2017, Information Strategies, Inc.
P.O. Box 315, Ridgefield, NJ 07657
201-242-0600