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Use ‘restrictive covenants’ to limit damage from staff defectors

by on
in Hiring,Human Resources

You were annoyed last week when your company's sales manager quit. He'd been in that job for 15 years and didn't give any notice. But today, four of your best sales reps quit, too. And they're following that former sales manager to your company's biggest competitor. Now, the top execs are in a total panic.

What can your company do to save the business? Can it run to court and gain an injunction preventing the competitor from hiring your sales team?

That depends. Unless you can prove that former employees stole your customer list or other confidential information, you typically can obtain an injunction only if 1) you have a legally valid "restrictive covenant" and 2) the agreement has been violated.

Restrictive covenants come in five flavors: noncompetition agreements, nonsolicitation agreements, anti-pirating agreements, confidentiality agreements and patent assignment agreements.

Key point: If you start thinking about restrictive covenants after your company loses a key employee, it's probably too late. That's why it's wise to have your key employees sign such agreements when they come on board.

While some agreements should include all five of these restrictive covenants, many should not. That said, you should always require employees to sign confidentiality pacts.

Ask your labor attorney to determine which provisions would be necessary and legally enforceable. You may have to temper your restrictive covenant "wish lists" in light of industry standards and employees' willingness to tolerate such limits.

Finally, the timing of when a restrictive covenant is signed becomes absolutely critical. In some states, such agreements are legally valid only if they're signed at or before the start of the employment relationship, or if employees receive something of value, such as a bonus they otherwise wouldn't have received, at the time the agreement is signed.

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