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Overly broad noncompete deal gives you no protection at all

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in Human Resources

Pinnacle Performance Inc. hired Lynn Hessing as an independent contractor for about four months to design a card shuffler for one of its client firms. Despite having signed a two-year agreement not to work for a competitor, Hessing jumped ship and went to work directly for the client.

Pinnacle sued, but a court tossed the case out. Why? The contract's restrictions were way too broad, restricting Hessing from working for any of Pinnancle's current or past clients. Also, there was no geographic limit and no definition of the type of services he could do for other companies.

Courts can modify a noncompete agreement to make it reasonable, but they won't rewrite those that are too faulty to begin with, like this one. Pinnacle lost the case and also had to pay Hessing's attorney fees. (Pinnacle Performance Inc. v. Hessing, No. 25824, Idaho CA, 2001)

Advice: Before you draft a noncompete, check your state law. Many have strict limits on how far you can go in restricting competition and putting limits on a worker's right to earn a living. Also, show a business necessity for the agreement, such as how losing this key worker would hurt your business. In addition, add these factors to any noncompete:

Time. To be enforceable, an agreement usually has to be limited to one or two years.

Geography. Workers must have a reasonable opportunity to work, so limit the restrictions to the areas where you operate or reasonably expect to operate in the near future.

Consideration. Some states require you to ante up something of value, such as a bonus or promotion, in exchange for a worker's signature on a noncompete. Other states say the job itself is enough compensation.

Note that a so-called "blue-pencil provision" allowing a judge to alter some terms of the agreement can also avoid having the entire document thrown out.

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