By Jessica (with a little help from John)
Recently I (Jessica) attended a presentation at Equinox Business Law Group titled “Non-compete, Non-Solicitation and Non-Disclosure, Oh My! Crafting Effective and Enforceable Employee Restrictive Covenants.” Victoria Bartow did a wonderful job presenting and I learned things that I wasn’t aware of, given I’m new in this industry. Here are the most important things I learned.
- The best time to have an employee sign a non-compete is at the time of hiring. If it’s done with an existing employee there needs to be compensation, as you’re changing their terms of employment.
- When there’s an asset purchase of the business the employee is newly hired by the buyer and no compensation is required (but can be given).
- If you are going to have non-compete agreements for everyone in the company, make sure you tailor it to the person’s specific role. Don’t have the same criteria for the office admin as you do for a sales associate.
- It is good practice to ask a potential employee if they have any restrictive agreements from past employers before you hire them.
- When considering if you need an employee non-compete, an important criterion is if they have access to proprietary information that is of value to your business. For example, customer lists, sales methods, trade secrets, and business strategy are just a few. If it’s of value to your business and could hurt you if used against you, then you should have a non-compete agreement.
- A non-solicitation agreement means if an employee leaves your company they are not allowed to solicit your customers or employees for their benefit or the benefit of a competitor. This can eliminate the worry for any owner, especially a new owner post-sale.
- Employee non-complete agreements are generally not enforceable as you can’t prevent someone from earning a living in their chosen profession, but you can enforce a non-solicitation agreement. Non-competes with a business seller are enforceable, as there’s significant compensation given via the purchase price.
“A wise man once said, nothin’ at all” Drake