Non - Competes As A Protection Tool

Non-Competes Are the Best Kept Secret to Retaining Your Employees

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Non-Competes Are the Best Kept Secret to Retaining Your Employees

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Non - Competes As A Protection Tool

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A non-compete has become a crucial component of the technology industry in light of the expanding economy and the daily introduction of new technologies. Non-compete agreements are crucial to maintaining a competitive edge and aid in discouraging employee espionage in those states that permit restrictive covenants. A non-compete is your strongest line of protection against your rival when an employee quits a firm, especially in sales environments or industries where the information is extremely important.

Employer Non Competes Are an Employee Retention Tool 

I was reminded of the importance of employer non-competes for companies to use as an intellectual property and company protection tool after reading Dan Schawbel’s article on his opinion that non-competes are on the decline and should be illegal. I can speak from personal experience as an organizational management when I say that losing our top performer is our greatest worry. But even worse than losing your top salesperson is having your customers targeted and seduced away by a former employee who is well-versed in your company’s playbook. Because of this, non-compete agreements are crucial to safeguarding your business’s profitability rather than just your employee’s livelihood.

One of the most well known cases involving intellectual property was Mattel vs. Bratz where developer, Carter Bryant, was order to pay damages to Mattel for trying to create the Bratz brand while still working for their company. After winning, Mattel required the creator to pay hundreds of millions of dollars in damages. Although non-compete agreements may appear harsh to a job applicant, they are a vital kind of insurance for any business in a cutthroat market. Companies are now utilizing the use of a non-compete clause in any typical employment contract for a number of important reasons, including trade secrets, top talent, and protection from competitors. Employees who develop ideas while working for a company do not own the rights to those ideas, unless they are Mark Zuckerberg and then they settle in court.

There are a ton of lawsuits surrounding social media and who owns Twitter followers and LinkedIn connections. All of these have some connection to who owns what when an employee departs. If you’re an employer looking for a guaranteed media frenzy, file a lawsuit to claim ownership of your departing employees’ Twitter followers. Even though it won’t be favorable, publicity is publicity, right?

The employer is protected but not guaranteed by having a strong legal foundation in place when it comes to their employee. Additionally, it conveys to potential clients, applicants, and competitors that you mean business.

Protection of Trade Secrets.

Any type of valuable business information that you are trying to keep a secret from competitors is subject to trade secret protection. Maybe you are wondering if there is a difference between non competes and protecting your trade secrets. Putting safeguards in place not only protects this information, but it shows interested parties that you’ve attempted to keep your idea an actual secret.  A widely recognized precaution includes requiring employees to agree not to use or disclose confidential information. Having non-compete clauses in your employment contract is taking an extra step in keeping your company trade secrets, a secret. Plus, there’s this little thing called an invention assignment clause when it comes to work for hires.  Tricky, complicated stuff. That’s why I call my favorite lawyer for the skinny. He steers me in the best direction to chat with specific attorneys who specialize in the complicated world of this kind of thing.

Enhance the Value of Your Company.

Increase Your Company’s Value. Like the majority of Silicon Valley businesses, you desire to sell or be acquired at some time during the course of your business’ existence. Through non-compete agreements, owners and significant investor-employees (think stock options) may be barred from competing with the new owner. According to California Business and Professions Code Section 16600, restrictions on an employee’s right to compete are not permitted unless they are connected to the sale of a business or the employee is returning a sizable portion of their stock to the company as they leave. It is more crucial than ever to safeguard the value of your business by making these personnel sign binding non-complete agreements. When a business is sold, the buyer wants to know they are getting what they paid for because they bought the firm in the first place. The worth of your company drops sharply if customers think that essential assets have been shared with rivals. When starting a business, get the owners, partners, or significant investors to sign non-compete agreements because forgotten covenants can lead to their own legal disputes.

Deter Competitors from Hiring Employees.

Although a non-compete clause won’t completely prevent your rivals from hiring your employees, having access to sensitive data or customer relationships will. The good thing about the shifting competitor culture is that it sends a signal to your rivals that you are ready to defend these interests.

Protecting Your Work Assets Like Marissa Mayer

A non-compete clause or other assignment of inventions clause doesn’t have to seem like an evil thing that companies do to end all outside engagement. Then again, we know exactly how the press and Yahoo employees feel about the recent HR decree from CEO Marissa Mayer ending telework. A non-compete is not an employee retention tool.  An employee non compete agreement is a company protection document and mechanism pure and simple just like signing your employee handbook acknowledgement. Non-competes do not guarantee that if used in good faith an employee will stay loyal to a company and not destroy the company from the inside out.  A policy, document or corporate decree doesn’t change the company culture, bad work environment or shoddy way of doing things. There are many benefits to the company and even to the job seeker when it comes to non competes. There are also perils too so check your state requirements when it comes to non competes. Don’t look at a non-compete as a contract to hold back your employees, but to give them the freedom to develop and excel at the products offered by your own company. Protecting your assets is just good business sense especially when your employees know what those boundaries are. Now, back to working in my virtual home office.

What’s your experience with Non Competes?  Have you had a non compete go bad or a work story you care to share? As a business leader, have you ever had a situation when you had to involve legal or go to court?  

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10 Comments

  1. Non compete agreements are tools that only defend the company’s interests, and only impedes with the employees’ careers. I agree, when you sign a non-disclosure agreement, the company allegedly gives you a substantial raise to compensate, but that is not always the case. The laws should be more strict when a company decides to, all of a sudden, impose this sort of agreements.

  2. With a non-compete, an employer walks a fine line between trying to protect their business and allowing a employee to work in their field. In some areas, mergers have significantly shrunk the job market and there are not a lot of jobs out there. Non-competes should be for top tier execs and not the little guys!

    1. Joan,

      I’ve had entry level sales pros sign non competes. The NC kept them from taking customers if they left to a competitor but only for a year. They could still go work for a competitor, but we would hear from word of mouth that they were there and then I would have the attorney send them a nice threatening note. Generally, things stopped there for the entry level positions. NC’s are used in all types of positions and there are different laws based on the state where you sign.

      Thanks for the comment.

      JMM

  3. In my experience a non-compete is strictly one sided and in favor of the employer. In the current challenging economic environment the employer has an overbearing advantage. A potential employee, who has been unemployed for an extended period of time, has few choices with job offers, and most likely will accept a non-compete, even if it’s not to their advantage. In this anecdote, an employee with a several year non-compete is terminated after a short tenure, leaving him/her with no opportunity to be reemployed in that market. The employer, as they now have the knowledge of the employee’s created contacts, established business and business pipeline, is the sole beneficiary of the terminated relationship. So, where’s the equity?

  4. I could not disagree more. I think NDAs are important (you can’t take or share our property with others), but broad noncompetes (you can’t use your own brain and hands to compete with us) manage to be pointless AND undermine innovation and employee engagement at the same time.

    1. Mary Ellen,

      Of course and those if challenged in court probably won’t stand. Except that most employees or former employees won’t go to court because it’s expensive and that’s what employers want.

      I think NDA’s are important especially in the business you and I are in but those are different from NC’s.

      Thanks for the comment.

      JMM

  5. If you’re in a business that is either pure commodity, or highly, highly trade secret oriented, there MIGHT be an argument for non-competes. Beyond that they are entirely one sided and I would recommend to anyone to walk away from the job rather than sign one of these agreements.

    The industry that I work in. You have companies that produce products that go to many Fortune 500 companies. For anyone signing one of these agreements, if enforced, you are precluded from working in the industry for a year. You might get a job with a company outside of your area of expertise, but you would go in at a novice level and novice pay.

    If a company needs you that much, then they should be willing to pay you for the year that you’re out of work.

  6. There are so many ways around non-competes and non-solicits. It’s absurd for someone to attempt to stop another person from working. Last year a former sales colleague of mine left our company to work for a competitor. Because the new company was already also doing business with most of his old clients, the non-solicit was void, and he could freely work with his clients.

  7. My son had a 2 year NC; he was working for a large private firm, and his direct super was the owner’s son. The two did not get along, guess who had to leave? He was told that the company was cutting back on sales staff, but less than two weeks later the company was advertising to hire a replacement salesman.
    The company’s actions should have made the NC void.

  8. I respectfully disagree. Non-competes are about trying to prevent an employee from working for a competitor. They do nothing to actually “retain” an employee. If anything, they foster a feeling of distrust. If you want to retain your employees, treat them right rather than accuse them of something before the fact.

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