What good do employee non-competes do?

IT IS THE UNUSUAL employer that would not want to restrict the ability of its employees to leave the firm and go into competition with it. Beyond just being part of our DNA to want to protect what is ours, employers frequently have no choice but to reveal to their employees customer lists, estimating systems, supplier quotes, installation techniques and many other types of information that give the

IT IS THE UNUSUAL employer that would not want to restrict the ability of its employees to leave the firm and go into competition with it. Beyond just being part of our DNA to want to protect what is ours, employers frequently have no choice but to reveal to their employees customer lists, estimating systems, supplier quotes, installation techniques and many other types of information that give the employer a competitive edge.

Employers also put their employees in positions to develop relationships — close relationships, they hope — with customers, designers, inspectors and others who have a large say in whether the employer's projects will be successful. But every bit of information shared and relationship fostered make the employer all the more vulnerable to damage (I mean, of course, money and not just hurt feelings) if the employee leaves and uses the information to compete.

The obvious way to deal with this is through non-compete, non-solicitation and confidentiality agreements. All these issues can be covered in an initial employment agreement, or in separate agreements just dealing with them. As many of you readers know, however, not all attempts to impose such restrictions end up working. Some of the reasons are:

Overly broad restrictions. Judges and juries can be expected to apply that honored legal maxim that "pigs get fat, but hogs get slaughtered." Even where the employee has done some bad things, there is still a reluctance to keep someone from being able to earn a living. Things that courts look at skeptically are:

Time limits. A non-compete that lasts longer than the length of time that it might take you to establish a relationship with a new salesperson may cause problems. One year may work, but five years may not.

Geographic limits. To bar an employee from working in four states or within 250 miles of your office may not be enforceable if you can't show that you are working in all those places.

Lines of work. If the employee only worked in estimating plumbing takeoffs, a court will not like an agreement that prevents him from being a safety officer.

Who should sign them? While some firms want all employees to sign " standard" agreements to avoid the appearance of singling anyone out, is there any real threat of the janitor or night watchman harming you in his next job?

Lack of consideration. The best time to get an employee's agreement to restrictions on what he will be able to do after leaving your employ is before he goes on your payroll. As part of the original agreement to employ the person, these issues can be put on the table, and, if the prospective employee doesn't like them, he has the excellent option of not taking the job. If the person is promoted to a job for which you think a non-compete now becomes appropriate, it can be documented at that time.

'Pigs get fat, but hogs get slaughtered.'

Non-competes that are presented to current employees for acceptance as a condition of keeping a current job that previously didn't require them can backfire. Often lawyers will try to solve this problem by including some modest payment ("For $10 and other valuable consideration") but the more nominal the payment, the less the chance that a court or jury will enforce it.

Non-compete vs. non-solicitation. It may be that an employer doesn't need to go so far as to insist that the employee can never compete, as long as the employee doesn't try to go after existing clients or legitimate prospects. These firms or persons can be identified at the time of termination and documented (if not, the employer's system should be changed so that this can happen). Courts are much more likely to protect a business's interest in its customers, especially if the employee only had access to them through the employer or was being paid by the employer to work with them, in cases where this does not prevent the employee from taking other employment. Even the non-solicitation agreement should have "consideration," however, and be in a formal written document.

Trade secrets. Trade secrets will often be protected by law from theft by former employees even without written agreements (it's stealing your property, after all). The problem will be proving all the things that will be contested: what was or was not your proprietary information, what the employee could legitimately be doing with the information, etc.

You will need to work closely with your attorney on all these agreements (yes, that means spending money) to think through what you need, and only what you need, to protect because the consequence of making the agreement too broad may be to void the entire document. Sometimes courts will narrow the restrictions on their own to what they think is fair, but just as often they throw the entire agreement out, to punish you for, well, being a hog.

Susan McGreevy is a partner at Husch & Eppenberger, Kansas City, Mo., 816/421-4800, e-mail to [email protected].

TAGS: Law