Succeeding in Your Business
MAKING YOUR NONCOMPETE AGREEMENTS STICK "I run a small home heating oil business. For years, I have had a wonderful employee who schedules oil deliveries, furnace cleanings, and air conditioning repair jobs for our customers. She has gotten to know pretty much all of our customers over the years, and they all adore her. Last week she announced her engagement to a man who is employed by a competing business. While I have no reason to distrust this employee, I'm concerned that her 'change in life situation' will tempt her to divert customers to her fiance's business or, worse, leave our company to join up with the competition. Should I get her to sign a noncompete agreement? I've been told that they're pretty worthless as the courts don't like to enforce them." It's true that noncompetes are tough to enforce. If your agreement isn't very carefully drafted (and most of the ones I see aren't), a judge will look at it as an attempt to deny someone the right to earn a living, and she will find a way to strike it down. Having said that, your agreement should be enforceable as long as it is reasonable and not overly broad. Warning: Noncompete agreements are very tricky to draft properly. Make sure your attorney does the job, and DO NOT under any circumstances use a "boilerplate" agreement you find in a book or on the Internet. The first step in drafting a noncompete that may actually withstand litigation is to identify the specific behavior you do not want your employee to engage in, as narrowly as possible. In this case, you should be primarily concerned that: -- Your employee does not make copies of your customer lists and other "trade secrets" and hand them over to her fiance; and -- Your employee does not solicit or encourage your customers to call her fiance's business for services that compete with yours. While an agreement prohibiting her from working for any oil service business in the United States after she leaves your employment would almost certainly be stricken down as overly broad, courts are much more likely to enforce "trade secrets" and "nonsolicitation" agreements like these, especially if they prohibit only the disclosure of information (such as a customer list) that any reasonable business would consider sensitive and confidential. If you still want to make your employee sign a "noncompete" -- an agreement that prohibits her from working in the oil service business for a period of time after she leaves your company -- you will have to think carefully about the "scope" of the noncompete. By "scope" I mean the time period and the geographic area within which your employee will not be allowed to work in your industry. A five-year time period is probably too long, and six months would probably not give you enough time to engage in "damage control" -- hiring a new employee, training him or her, and notifying your customers of the change -- if your employee just up and quits. I would settle on one to two years maximum. As for the geographic area, the agreement should cover only her fiance's business and any other oil service company within the area your company services. Look through your list of customers and make a list of the ZIP codes where they reside. Since your real objective here is not to lose customers, limiting the "noncompete" to just those ZIP codes will make it hard for your employee to argue that she is being denied the right to earn a living. Finally, once you and your attorney have agreed on the precise wording of the noncompete, you should: -- Be sure to meet with this employee privately and discuss the situation with her informally before handing her any sort of legal document; -- Reorganize her job duties so that customers hear other employees' voices when they request service calls; -- Offer her something she isn't already entitled to (such as a year-end bonus or an additional week's severance pay upon termination) in exchange for signing the noncompete; and -- Require that all employees having contact with customers sign the noncompete (in exchange for the same extra compensation) -- that way she will not feel "singled out" (or possibly discriminated against) because of her marriage plans.