Are you worried that your competitor may steal you best employees? Clearly the best strategy is to make those employees too happy to leave. Realistically, though, you may also want to ask them to sign non-compete agreements. Employees resist these agreements, and many believe that they are an illegal restraint of trade. Nonetheless, courts have recently upheld reasonable restrictions to protect both confidential information and customer bases. What is reasonable? That is the question, and that is why you need the expert business legal advice and drafting skill of a firm like Owen Hodge Lawyers. If you want to protect the value of your business and are thinking of asking prospective employees to sign non-compete agreements, or if an employee has already gone to work for a competitor in apparent breach of a non-compete agreement, schedule a consultation with us. We can be reached at 1800 770 780 or Contact Us.

If Former Employee Appears to Have Breached a Non-Compete Agreement

The problem may be relatively easy to solve with a demand letter. These are vastly more effective on legal letterhead. If it is necessary to pursue damages or injunctive relief, though, you should have expert legal advice to help you evaluate your options. Courts have historically been uneasy with overly broad restrictions, and even when they choose to enforce an agreement they may use what is referred to as the “blue pencil rule” to strike certain provisions. Whether you are evaluating the likely enforceability of an existing agreement or considering asking a prospective employee to sign one, you should be aware that courts look at 4 factors when evaluating reasonableness:

  • the business interest protected,
  • the importance of a given employee to your enterprise,
  • the length of the restriction and
  • the geographic expanse of the restriction.

What Business Interest Do You Want to Protect?

Customer lists are very likely to be protectable assets. It may be somewhat harder to make the same argument for the mixture of social and professional relationship that develops in some sales situations. It could be very difficult to protect an interest in information or practices that are already widespread, like generally accepted accounting practices. Consider whether the information is already adequately protected under a non-disclosure agreement, which is less restrictive of the employee’s future behavior than a non-compete agreement might be. It may also be difficult to protect an interest in an area where you already face stiff competition. If you operate a dry cleaning business and your former employee opens another drycleaner within three blocks of you, it will be difficult to argue that you have a protectable business interest in that three-block area if there are already four other dry cleaning establishments there.

How Important is the Employee to this Business Interest?

One way to measure this is by looking at the employee’s compensation. If the employee is highly compensated it is easier to make the argument that the employee was essential to an important business interest. Non-compete agreements are harder to justify for lower paid employees for this reason and because it may appear that the employee was not paid for the risk of unemployment in the event he or she decided to change jobs. In legal jargon, there was no consideration for the agreement not to compete. If, having re-evaluated your policy on non-compete agreements, or because an employee’s duties have changed, you decide to ask an existing employee to sign a non-compete agreement, some additional payment may be necessary. On the other hand, it is very easy to enforce non-compete agreements under which the employee remains on the employer’s payroll for the period of restriction but is relieved of all duties, so called “gardening leave.” Some employers craft agreements that offer a mixture of paid and unpaid time.

How Long Does the Restriction Continue?

Here is where the collection of issues begins to work together. The more important the former employee was to an essential business interest, the longer the period of restriction that may be understood to be reasonable. Is it no more time than necessary for a new employee to build the same kind of business contacts? Does the confidentially-held information change fairly rapidly? There is no magic number. It is rare to see a period of longer than 24 months, however, even for a highly compensated employee who was essentially “the face of the business” to important clients or customers.

What is the Geographic or Market Area of the Restriction?

Preventing a former employee from working anywhere in the world or within a broadly defined industry, like banking or construction, comes perilously close to rendering that person unemployable. It begins to look like a punitive measure, rather than a legitimate effort to protect an appropriately defined business interest. These limits have to be justifiable based on a realistic assessment of your market. It may, nonetheless, be fairly difficult to determine in a business with a significant online presence, and you may benefit from professional advice.
Losing a valuable employee can cause serious harm to your business, even more so if that employee takes clients or confidential information to your competitor. You can protect your business, however, by acting to enforce carefully crafted non-compete agreements. Courts view these agreements with some caution, so it would be wise to seek the business legal advice of a firm like Owen Hodge Lawyers. Schedule a consultation with us at your earliest convenience so that we can help you protect the value of your investment in your business and plan for a more secure future. Call us on today on 1800 770 780.

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