You need to protect your business from a growing number of risks, both internal and external. And for many companies, one part of doing so is by using a non-compete agreement (NCA).
But before you break out a standardized form and ask all your current employees to sign on the dotted line, avoid these risky mistakes.
Not Offering Consideration
A NCA generally favors the employer, who drafts it to protect their company. But the business must offer something of value in return for the agreement of the other party, the employee.
With new hires, that consideration is generally easy - it means giving them a job. But if you're working with those already in your employ, you'll need to offer something additional as consideration for giving up their right to free employment.
What would this additional consideration look like? Work with your business attorney to determine the rules of your state. However, it could be a promotion to a position with more access to information, additional benefits or compensation, or even a one-time payment.
Using the Same Agreement
All jobs and functions within your company are not the same. Therefore, NCAs shouldn't be the same either.
Standard clerical staff and shipping clerks aren't involved in proprietary activities in the same way that managers, researchers, or engineers are. So, using a standardized agreement may not demonstrate that your company is legitimately trying to protect specific sensitive information or processes - it may only show your company is trying to limit competition.
Instead, determine who really needs to sign a NCA and craft agreements with those positions in mind. You may want to personalize the agreements in relation to the geographical area, the time frame involved, the information each position has access to, or the consequences of breaking the agreement.
For instance, upper management may be subjected to a bigger geographic area than lower level employees so as to protect bigger business interests.
Not Providing Privileged Information
If you have employees to sign an agreement saying they will not go to a competitor after leaving your company, make sure that there's a good business reason why. The persons involved should have access to actual, legitimately secret information of some kind.
For example, a customer list built up over years of careful work within your geographical area might make the grade, but a standard mailing list bought off a third party from public records probably won't do it.
As with a standardized agreement, casting your NCA net too wide diminishes your claim that the agreement is necessary to protect business interests.
As you roll out NCAs at your company, start with a specific list of positions that should have one - such as managers, executives, or research and development personnel. But for each additional person, consider how you would prove to a court that the position is sensitive enough to warrant an NCA.
Being Too Expansive
Don't try to tie up ex-employees for an extended period of time or deny them a wide geographic area. Extending your expectations out too long makes you look vindictive or punitive.
Similarly, saying that the employee can't seek work in half the United States also decries the idea that you're trying to fairly protect your own business's service location.
A reasonable geographic limitation should show that it protects customer relationships without trying to limit all normal competition. And it must not unfairly inhibit an ex-employee's ability to earn a living.
Do you need help determining which of your existing employees should sign a NCA? Or do you need help drafting such documents? The business attorneys at Gary A. Isaacs, P.A. , can help with all your business legal needs. Call for an appointment today.