Author’s Note: With this article, I’m happy to resume a series that started about two and a half years before the pandemic hit. He wrote the first of his five installments in this ten-part series in early 2020, and then the pandemic hit and business, as you know, was disrupted. But recently, I was pleased to learn that a national newspaper picked up and republished one of his articles in the series. This motivated me to complete the series.th paper.
Why should we be wary of getting employees to sign non-compete agreements or other restrictive covenants (what lawyers call them)? It has become a preferred means of protecting employers around the world. This is what most business owners know from recent headlines in lawsuits over covenants.
When non-compete obligations are appropriate
There are certainly many circumstances in which non-compete obligations are appropriate or even necessary. For example, say you are buying a retail business from an entity that has been in that business for many years. The last thing you want is for the seller to start a new company in the same line of business right beside you. can protect Or suppose you are entering into a contract to sell a company’s products. Include a restrictive clause in your sales contract because you never want the company whose product you are trying to sell sells into the same geographic market as you and uses the goodwill you create to cut you off from the sale It is natural that
When non-compete obligations cause problems
But restrictions in the world of employment pose an entirely different set of problems. While courts in most jurisdictions other than California prefer to enforce restrictions in employment contracts, parties seeking to enforce restrictions must ensure that restrictions are strictly enforced to protect legitimate business interests. It bears the burden of proving that it was drafted in the United States and must overcome the public policies that support it. Free and open competition, especially in the labor market.
The most extreme expression of that public policy became law several years ago when California enacted a law rendering most non-compete agreements in employment contracts unenforceable. However, despite similar legislation proposed in several states, it has yet to materialize.
Restrictions on an employee’s ability to earn a living
Nevertheless, in most jurisdictions, restrictive clauses are more difficult to enforce in employment contracts than business contracts. that their ability to earn a living may be limited. For example, a doctor with a narrow specialty located in a geographic area where the demand for that specialty is low could separate her family and You may have to move to find a job. Or work for another company in the area. Furthermore, it cannot be ignored that many, if not most, non-compete agreements are subordinate agreements and the employee’s only real choice is to sign them or be fired. Courts may consider such considerations as a balance with employer-friendly language in employment contracts.
Employees who do not have access to confidential business or trade secrets
Another problem caused by the excessive prevalence of restrictive clauses in employment contracts is that of employees or employers who have little or no access to or exposure to their employer’s trade secrets or confidential business information. It is frequently imposed on employees who do not hold the trust of others. The sole valid basis for non-compete agreements. If an employee does not have access to the company’s confidential business information, imposing restrictions on that employee can only be viewed as a means of hindering legitimate competition.
A terrible example of this behavior occurred several years ago when women in New York City competed against dog walkers to prevent women from working for another dog owner. It was made public when it was reported that the non-restrictive agreement was being enforced. If so, what was the sensitive information sought to be protected? Protecting legitimate trade secrets of employers from being illegally used by outgoing employees to the detriment of former employers.
Finally, employees are often your most expensive and most valuable asset. One way he does it is by asking senior managers and other key employees who have access to the company’s most valuable confidential information and trade secrets to sign non-compete agreements. It is quite another to impose restrictive pledges on general employees, especially if they are not new hires and are existing employees with no significant business contact. Employers take risks when it comes to sending a message to loyal employees that they don’t trust them. In my experience, you get more loyalty and productivity from the majority of your employees by paying them fairly and finding ways to let them know you value their contributions. .
Carefully limit the use of non-compete obligations
In short, employers should carefully limit the use of non-compete obligations to only employees who absolutely need it. Otherwise, employers will find themselves embroiled in costly lawsuits with former employees. Former employees will argue, among other things, that the former employer has no legitimate interests to protect and that the public interest is undermined by the enforcement of non-compete laws. Employers with excessive non-compete obligations often appear in court at a disadvantage, even if the employer has legitimate interests to protect. Therefore, having well-tuned limits is very important. In addition, employers who sue and lose because the restrictions they are trying to enforce are too broad face the risk that other employees with similar non-compete obligations will dare to violate them. Employers will bear the burden of proving that they are worthy of enforcing their noncompetition, which comes at a cost. It might be worth the money and distraction, but it might not.
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