Tailor non-competes to a T: a one-size-fits-all non-compete agreement won't pass a judge's inspection

HR Magazine, Sept, 2006 by Stephen L. Richey

If your business is like most, you probably rely on a few central employees: the leading salesperson who has cultivated numerous relationships with clients, the head researcher who has developed a revolutionary industrial process, or the key executive who has brought pre-eminence to the company. Should one of these central employees leave, your business quickly may lose its competitive position--especially if the former employee joins a competitor. To protect your most valuable business assets--customer relationships, pricing information and marketing strategies-you will need to develop well-drafted, narrowly tailored non-compete agreements.

[ILLUSTRATION OMITTED]

And you will need to use those agreements sparingly. Limiting non-competes to employees who present a genuine competitive threat demonstrates the importance and reasonableness of any restrictions, and enhances the likelihood that the agreements will hold up in court.

Thus, it is key to carefully consider which employees have access to confidential information or processes when determining who should sign such agreements. A thoughtful, consistent approach--both to identifying which employees must sign agreements and to drafting individual agreements--provides the strongest chance for success.

But a well-tailored, narrowly focused agreement is only the beginning. To overcome many judges' distaste for non-compete agreements and to stop former employees from damaging your business, you'll need to take other practical steps as well.

Tailor To Fit

A written agreement that limits an individual's future employment is enforceable only to the extent that its restrictions are no greater than necessary to protect the employer's legitimate business interests and do not impose an undue hardship on the employee. Accordingly, a carefully drafted agreement that imposes reasonable restrictions is the key, not only to securing the employee's voluntary compliance--which is the desired effect--but also to persuading a court to enforce an agreement as written if the employee fails to comply.

In designing a non-compete agreement, a company should consider information material to whether a non-compete agreement will fit an individual. Relevant factors include:

* The scope of the company's operations and the employee's duties.

* The scope of the agreement's time and geographic limitations.

* The employee's level of contact with customers, clients and business partners.

* The employee's access to or possession of confidential information or trade secrets.

* The employee's possession of knowledge and training gained as a result of the employer's efforts as opposed to general skills and techniques or skills the employee brought to the job when hired.

* The relative benefit of the restriction to the employer and the hardship on the employee.

* The employee's ability to earn a living if the agreement is enforced.

If an employer decides that a non-compete is suitable, it should craft the agreement as specifically as possible to that person. In other words, avoid boilerplate, one-size-fits-all agreements. Nothing jeopardizes enforcement of an agreement more than provisions that are clearly inapplicable to the employee in question.

Design the agreement to fit the individual in a specific position by:

* Delineating the employee's title and job responsibilities to establish the level of trust and confidence that the company places in the individual.

* Articulating the types of confidential material to which the employee has access--for example, customer lists, sales strategies, growth plans and pricing strategies.

Specific types of clauses in non-compete agreements require specific kinds of drafting attention. Tailor a restriction against working for a competitor to the employer's actual type of business.

For example, an employer that makes special coatings for the paper industry should limit its restriction to that specific field, rather than include a general prohibition against working for a competitor. If it is easy enough to expressly denote your company's major competitors, that too will go a long way toward convincing a court that the restrictions are narrow and reasonable and that they fit.

A Few Stitches In Place and Time

Think of geographic and time restrictions as the seams to non-compete agreements. Some states will not enforce any non-compete that does not contain geographic restrictions. A valid geographic restriction depends on the scope of the company's business as well as the individual employee's duties.

A national or even worldwide restriction may be valid if the company is actively engaged in business on such a wide front, but only if the employee is actually engaged in business on the same scale. Otherwise, the restriction may be unreasonable. For instance, a company may sell its product on a national basis but assign its sales representatives to particular regions. A restriction beyond the employee's regional territory will be difficult to enforce.