Companies today can learn a lesson or two from Lord Alfred Tennyson, who had something to say about trust more than one hundred years ago. “Trust me” he said “not at all or all in all.”
Tennyson’s words ring true today. Just run your own search of noncompete agreements on Yahoo! or Lycos, and I think you’d be surprised at what you find.
Apparently, businesses have become sufficiently insecure that employees must sign covenants agreeing not to work for a competitor if they leave. The entire concept reminds me of feudal lords enslaving their serfs.
If you conduct that search, I think you’ll find the biggest proponents of noncompete covenants are law firms. I wonder if that would have anything to do with the money they make drawing these things up?
Obviously, companies use such agreements in an attempt to protect trade secrets and prevent competitors from learning details of their operations. However, noncompete agreements offer a poor method of protecting such information. This is especially true for network administrators, consultants, and other IT professionals. Yet they’re often asked to execute such documents.
Trade secret agreements are understandable. It makes sense to ask an employee not to tell Ford about the special new hot rod a coworker was developing at GM across town. But don’t ask an employee not to use his or her skill set at a competitive organization. There’s no reason an IT professional can’t administer a network for Coca-Cola, then move to Pepsi-Cola and support systems there without releasing confidential information.
If a company doesn’t trust an individual, it shouldn’t hire that person. That’s what references, a resume, and interviews are for. Businesses must take responsibility for their hires. They should use positive reinforcement to retain employees, rather than legal documents that are often questionable in a court of law.
Employees are more highly motivated if they have respect for an organization’s officials. They’re more likely to dedicate themselves to a corporation’s mission if compensated fairly. I’ll bet you’d also see more employees sticking with a company if they were extended flexible and pleasant work environments.
Provide value if you must use covenants
If an organization is going to bind its employees to the company, it should provide them with ownership. Stock options and other forms of corporate ownership should be extended to the employee.
Businesses should know, though, that noncompete agreements can prevent the development of an affinity between a company and an employee. The warm and fuzzy discussions of goals, the zest and excitement of preparing new projects, and an enthusiastic recruit’s fresh, effervescing energy can all be brought to an icy halt when a noncompete agreement is pushed across the table.
Take a look from the other side of the desk: “Oh, essentially you want me to agree to work 55-hour weeks, be on call 24-hours a day, 365-days-a-year, invest all my energy into improving the company’s systems and networks, and accept whatever bonuses you actually agree to pay? Further, you want me to agree not to use somewhere else the skills I paid tens of thousands of dollars to acquire and invested five or six years of my life to develop, should I ever choose to relocate my family, work for a mentor, or pursue a better opportunity?”
This is not the best method for impressing new or prospective employees with an organization’s interpretation of empowerment. And it’s not an appropriate or proper retention tool.
Don’t do it
Here are three indisputable reasons why businesses should reconsider implementing noncompete covenants:
- Courts often don’t recognize the validity of noncompete agreements
- The covenant will push away qualified prospects
- It could cost the company a bundle
Noncompete validity is questionable
Even if an organization implements noncompete agreements, there’s no guarantee the legal instrument will provide value for anyone but the law firm that creates it. While I’m not an attorney, a quick perusal of case law proves courts often refuse to enforce noncompetes. In fact, a number of states (among them Colorado, Florida, Hawaii, Louisiana, Montana, Nevada, North Dakota, Oklahoma, Oregon, South Dakota, and Wisconsin) have found them to be invalid instruments or subject to limitation.
Generally, and remember I’m not dispensing legal advice, consideration must be supported for a noncompete to be found binding. Small Business Counsel has more information on the particulars, If you’re interested in reading more.
SmartAgreements indicates that courts zero in on three aspects of a noncompete document:
- Does the employer have a legitimate need for the covenant?
- Are any geographic restrictions realistic and reasonable?
- Is the duration reasonable?
If a noncompete agreement is issued after an individual has begun employment, courts usually find the covenant unenforceable. And according to SmartAgreements , a trend exists among states to “enforce a noncompete promise only if the employee made that promise in the context of a larger agreement.”
Risks of repelling prospects
Many prospects won’t like the idea of consigning themselves and their skill sets to one company. Mergers, rapid adjustments in business climate, and unpredictable trends can all change an organization’s course quickly. Thus, many talented recruits will think twice about joining an organization seeking to levy such restrictions.
Information technology is a great place to be, too. Jobs are everywhere. Companies don’t have the luxury of holding the higher hand. The laws of supply and demand are in the prospect’s favor. Many MCSEs, CCIEs, and Master CNEs are finding they can name their price. Why would they want to do so at an organization where they’d be restricting their future? After all, these certified professionals may have the best intentions when they join your firm in Atlanta, Boston, San Francisco, or wherever, but when the company is acquired by a German conglomerate that wants everyone to move to a rural enclave in eastern Europe, they’ll want to leave their options open. And rightfully so.
Noncompetes could put companies on the wrong side of the law
As I mentioned above, noncompete covenants are simply invalid in many states. In others, such agreements are scrutinized closely and are often limited in reach. In other jurisdictions, minor technicalities contained within an agreement render the entire instrument invalid.
Occasionally, an organization will stretch a covenant’s reach. Such behavior can come back to haunt it. Just take a look at Stacey Miller’s check for $689,743.53. A previous employer that allegedly abused conditions of Miller’s noncompete agreement wrote it. The tenacious Ms. Miller continued her pursuit of justice for 10 years after she was released from a position at a new firm, which feared a lawsuit with the previous employer.
Still other companies have had to fight lawsuits filed by ex-employees who felt shortchanged by their covenants.
Remember, the courts appear to favor the individual battling unfair conditions within a noncompete agreement, even if the person agreed to it prior to beginning employment. Just as companies can pursue relief through the courts, so, too, can the employee.
If you’re asked to sign a noncompete agreement, read it carefully. Ask questions. Have your own attorney review it. Check to see what the company is willing to provide you in exchange for an agreement not to move on later, possibly to a competitor. Or, move on to the next prospective employer.For more advice, check out James Marks’ article in The Next Step on surviving a noncompete agreement. You can read it here .