It use to be that the only employees required to sign noncompete agreements were high-level executives or research and development employees. Today, noncompetes are used more often throughout companies, even in the sales department.
“Sales folks have direct and pretty much daily interaction the life blood of a company — the customer,” says Jeff Dunlap, a partner at Ulmer & Berne.
Fierce competition and advanced technology allows the quick and easy transfer of vast amounts of data that could lead to the loss of high-value intellectual property.
“In my mind, a company has three major assets — its confidential information, its employees and its customers,” says Dunlap. “Protecting these essential assets for a limited period of time to ensure they don’t fall into the wrong hands is what noncompetes are all about.”
Employees who take confidential information about customers, clients and buying habits with them can be more dangerous than you think.
“They can do serious damage to their former employer,” Dunlap says.
Other restrictive covenants include nonsolicitation agreements, which restrict employees from soliciting former customers, suppliers and co-workers, and nondisclosure agreements, which prohibit them from disclosing confidential information or trade secrets from a previous employer.
Noncompete contracts can get very specific, limiting where and for whom a former employee can work. Some may even specify a limit on the length of time a former employee must abide by the contract before working for a competitor and/or restrict the geographic region for employment.
The average restrictive covenant covers one to two years, and some noncompetes include narrow regional restrictions. However, excessive time limits and unrealistic regional exclusion are dangerous because they may render a contract unenforceable under existing law.
Also, if unreasonable demands scare away potential candidates, the covenant may be too restrictive. Consider your business and know what you want to protect, says Dunlap.
To ensure a restrictive covenant will stand up legally, Dulap suggests taking these steps:
* Apply and enforce contracts consistently throughout the company.
* Require restrictive covenants at the time of employment. How to reach: Ulmer & Berne, (216) 902-8825
One key to writing an iron-clad noncompete is knowing what to protect.
According to the Alexander Hamilton Institute Employment Law Resource Center in New Jersey, only some information falls under the terms of a restrictive covenant. Consider these questions when deciding what to protect:
* Is the information generally known outside the confines of the business?
* Is it available to employees and others in the business?
* Were steps taken to ensure the trade secret was protected?
* Is the trade secret valuable to the competition?
* How easily could the trade secret be acquired or replicated by others outside the business?