Is your noncompete killing a fly with a sledgehammer?
At least half of my legal practice is serving as outside labor-and-employment counsel for small to midsize businesses. And, increasingly, much of that practice is consumed with drafting post-employment covenants, sending cease-and-desist letters to employees who are in violation of those covenants or filing lawsuits to enforce those covenants. Or, conversely, I often advise businesses whether they can hire employees with noncompete agreements or defend lawsuits seeking to enforce said covenants.
When a client calls me to draft a restrictive covenant agreement, I must work with that client to determine how wide of a net they need to cast (or how big of a hammer they have to swing).
A three-tiered approach
Knowing that most courts only enforce such agreements as necessary to protect an employer’s legitimate interest, I need to determine the scope of the legitimate interest the employer is trying to protect (and is entitled to protect).
- Are they worried about a theft or disclosure of confidential information? In that case, maybe a nondisclosure agreement is all they need.
- Are they worried about the employee poaching customers, employees or vendors? Then a nonsolicit pact is in order (plus the nondisclosure).
- Or is what the employee provides so unique that the business genuinely will be irreparably harmed by the employee jumping to a competitor? Then, and only then, is a broad noncompetition agreement called for (plus the nondisclosure and nonsolicit).
Tailor agreements narrowly
Employers, you need to use discretion and common sense. Narrowly tailor your restrictive covenant agreements to the specific interests you are trying to protect.
For example, a Jimmy John’s franchisee famously got called out for requiring all employees to sign a confidentiality and non-competition agreement that prohibited the employees (for two years following employment) from working at any business within three miles of any Jimmy John’s that derives at least 10% of its revenue from sandwiches.
It’s one thing to bind your high-level employees to a non-compete. It’s another to require the same of your low-level sandwich makers. The lower down the food chain you move, the harder it becomes to enforce these agreements because you lack a protectable interest.
If you don’t have that valid interest to protect, forego the agreement altogether for that employee or group of employees. Otherwise, you will spend gaggles of money attempting to enforce an unenforceable agreement. While that strategy is great for me, it’s terrible for your business.
Jon Hyman is a partner at Wickens, Herzer & Panza in Cleveland and one of America’s top writers and speakers on employment-law topics. You can read his popular blog at www.OhioEmployerLawBlog.com.