Last Updated: 05.06.2020
One of the regular questions that your Baltimore Small Business Lawyer gets asked by clients is, “how can I prevent my employees from taking what I’ve built and competing against me?” The answer is not as simple as asking them to sign a blanket non-compete agreement. The best non-compete and non-solicitation agreements will be carefully crafted with a few simple provisions in mind. Here are five factors that you (and your attorney) should consider when drafting employee non-compete/non-solicitation agreements:
- Have a purpose: Your agreement should not be a punishment for an employee leaving, but should be designed to protect your business from intellectual property theft and poaching of clients. Think protect – not punish. Courts want people to be able to work, in their chosen fields and regularly invalidate agreements that prevent people from working in a particular field.
- Limit the time: The agreement cannot last forever. It must be “reasonable” under the circumstances. Reasonable maybe 6 months, 12 months or 2 years. It depends on the industry and the client base.
- Limit the scope: The agreement cannot cover EVERYWHERE. However in some situations, “the east coast of the United States” has been reasonable. In other situations, a radius as small as 10 miles was found to be too large. It is a very, very fact-specific decision.
- Have your employee understand and sign it: Allow your employee to have a copy and keep it before signing. Signing does bind the employee to the contract, but there are a few cases that have held that a change in jobs changed the agreement, so if the person is promoted or moved, consider making the agreement part of any standard employment documents.
- Enforcement = costs: When an employee quits, you should contact our office to discuss options on how and if to enforce the agreement. Often reminding the employee of their agreement and having them sign additional acknowledgments regarding the agreement can prevent future problems. Also removing access to client information can help prevent some problems. Just know that when litigation occurs in the area of non-compete agreements, it takes a standard litigation schedule and compresses it to a few months (and also increases the costs). It is usually worth the fight, but a careful analysis should be undertaken of the costs and benefits of the process. It will be expensive and it will involve clients/customers. Weigh that against losses of intellectual property and clients and decide accordingly.
Non Competes in the news
Recently there have been a few articles disparaging the use of non-compete agreements. An interesting (albeit non-legal) discussion of the implications for a non-compete can be found here. and more here and here. Make no mistake, when you are drafting a document, you need to draft one that a court will actually enforce! As I wrote above, courts will try to work to allow a person to earn a living, especially a person who isn’t a CEO or engineering wizard with all types of Intellectual Property knowledge about your company.
Baltimore Small Business Lawyer: Bottom Line
A carefully drafted non-compete/non-solicitation agreement will reap huge dividends in the long run. Also, these documents should be reviewed every few years to ensure that it is still valid to its fullest extend. For questions on drafting a strong and valid agreement or any other small business question call your Baltimore Small Business Lawyer at ENLawyers!