The Non-Compete Agreement As A Business Strategy

The non-compete, non-disclosure agreement… Is it worth it or not? Business owners use them, employees sign them, all the time. What can they do for you? What is their value? There are many aspects and implications of such agreements frequently found in today’s employment contracts, and they must be better understood from both sides of the deal, employer’s and employee’s. To be clear, this discussion is not meant to provide specific legal advice, that should be done by your lawyer. However, I feel it’s worth discussing and considering the business merits supporting the logic and use of such a strategy.

What can be protected? Generally speaking, only something that can be considered proprietary, i.e., a secret, a special application, a unique strategy, a mailing list… but not general business practices. For example, a secretary cannot be restrained from being a secretary in another office by a non-compete clause. However, if the secretary handled sensitive information, had unique contact with secret sources and specialized training, it may be possible to restrain the secretary from working in the same industry for a brief time period to prevent damaging disclosure of confidential information. Other additional efforts would have to exist, such as the business exerting efforts to protect this information and thus treating it as confidential, laying the groundwork for such a claim to be made and the non-compete being enforceable. Finally, the area and time period is narrowly construed with a typically acceptable time being two years or less. Distance, unless it’s an industry issue, is also quite narrow and limited to a few miles, ten at the most.

What’s the point? It’s really quite simple. While neither employee nor employer wants to pay the legal bill to enforce the principle, it acts as a barrier to employees who leave an employment and want to work in the same field in the same market. When narrowly applied to a specific situation for legitimate reasons, as intended by the statutes, it provides reasonable protection to the employer who must share his secrets with his employees. On the other hand, the savvy employee knows all too well that he is unlikely to be chased, and if chased, the court will narrowly support the contract if at all. But, because of the fear of such action and the cost to defend if required, employees usually voluntarily follow the letter of the agreement, not wanting to create a legal battle and believing that since they agreed they need to do the honorable thing and follow through with self-enforcement.

So, what is the advice? Write it if you must, enforce it if necessary and appropriate for your circumstances and act accordingly while operating your business. Anticipate general acceptance and support by employees who leave your employment, so long as it is reasonably written regarding time and distance. Keep in mind that when issued merely to restrict competition and remove the opportunity for an employee to gain work elsewhere, it is deemed a restraint of trade and seldom enforced. In general, it works more by self-control and personal commitment than by court enforcement. Use it if you need to, have your lawyer draft the cease and desist letter informing the renegade employee you intend to defend your claim, and then see what happens. Or, spend the cash and try to enforce it and let the chips fall where they may. At its best, it is a reasonable barrier most of the time. Most people will respect the requirement, especially if they understood this was a requirement of the job and will act appropriately, thus making this a viable and important strategy to use where appropriate.