Don’t let flawed noncompete agreement break the bank

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in Employment Law,Human Resources

Lots of employers use noncompete agreements to protect against unfair competition from former employees. After all, it can be devastating to lose a top employee to your biggest competitor—and then see that employee poach business (and even other employees) away from you.

On the other hand, a poorly drafted noncompete agreement—e.g., one you obtained from a form book or the Internet—may create serious pitfalls. If the contract itself turns out to be unenforceable, and provides for the losing side to pay legal fees and expenses, you may discover that suing a former employee for violating the agreement winds up costing you hundreds of thousands of dollars.

Recent case:
Cintas Corp., a uniform company, sued its former employee Daniel Perry for allegedly breaching an agreement that prohibited him from working for any competitor nationwide for two years. The agreement included a provision saddling the loser with paying the winner’s attorneys’ fees.

Cintas lost because the court said the agreement was overly broad. Adding insult to injury, the court refused to change the terms and said Cintas owed Perry legal fees and costs—to the tune of $300,000. (Cintas Corp. v. Perry, No. 06-1958, 7th Cir., 2008)

Advice: Always have an attorney review—and preferably draft—any noncompete agreement. Ask for an explanation of every term in the agreement.

Final note:
The same advice applies for agreements that apply to sharing trade secrets and soliciting business from your customers.

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