Are Noncompetes Protecting Your Company?
By Jay Shepherd
Shepherd Law Group, P.C.
With the economy heating up, employee mobility is on the rise. While this makes many economists happy, it also causes problems for employers. Are departing employees taking their trade secrets and customer relationships with them to competitors?
More than ever, businesses are relying on noncompete agreements to protect themselves from employees diverting customers and trade secrets to their rivals. But do these noncompetes work? Just how effective these agreements are depends on many factors, all of which a company should consider when deciding to use noncompetes. For example:
- Noncompetes should protect something specific. Generally, a court will only enforce a noncompete when it's necessary to protect a company's trade secrets or customer goodwill. If a company tries to enforce a noncompete against a salesperson whose job never allowed her to develop lasting relationships with customers, a court will usually deny the injunction.
- The employee must get something in return. As with any contract, there must be consideration supporting the agreement. Many states allow the job itself to be the consideration for the noncompete: don't sign it, and you can't work here. But watch out if the person's job changes substantially. A Massachusetts court recently ruled that a company that failed to execute a new noncompete with an employee whose job changed drastically could not enforce the agreement after the employee went to a competitor.
- Custom-tailored noncompetes are better than boilerplate. Judges often give more weight to a noncompete that a company drafted for a specific employee rather than a photocopied, fill-in-the-blank form that the company uses with every employee. The customized noncompete appears to be more fairly negotiated and protects the company's specific concerns rather than generic competitive worries.
- Receptionists and janitors should not have noncompetes. Many companies go overboard with noncompetes, making every employee sign one as a condition of employment. This is risky, as it weakens the company's argument that there are legitimate business interests to protect. Instead, employers should only get noncompetes from employees who are in a position to take away trade secrets or customer relationships.
More than other areas of litigation, noncompete cases turn on the facts of the case. The better a company sets up its noncompete policy in advance, the more success it will have if it needs to enforce a noncompete in court.
Summer 2004 -Volume 14, Number 3
|