Marijo McCarthy is a principal in the firm of Widett and McCarthy, located in Newton, Massachusetts. Marijo specializes in providing business contract and other legal advice to smaller businesses. Marijo publishes a newsletter and this blog is from her recent newsletter.
My last newsletter focused on the confidentiality protection of non-disclosure agreements. This, in turn, raised questions regarding “non-competes.”
Does that kind of protection belong in the same agreement? Who should sign it? Are they just for my employees? If I am selling my business, I know I will be asked to sign one, but what about a request from a client … as a business owner, should I agree to that onerous restriction? And, really, what is their value anyway?
Three years ago, I shared with you the then, current thinking on Beacon Hill as to the Massachusetts Legislature’s take on non-competes. Today, and while there is growing support in many areas for some form of restriction of non-competes, there is, as of yet, no uniform agreement on what those restrictions should look like (other than less restriction on fewer employees for a much shorter period of time).
Here are my thoughts, if you choose to use a non-compete agreement with a key employee:
- Be sure you have protected your confidential information. – That means more than just stating that protection in an NDA. Rather, you need to have a clear, written policy in your company as to what constitutes confidential information, how it is protected and to whom access is given. Absent that, it is highly unlikely that a Court will grant you the protection you seek if there is a breach by an employee.
- Be sure it is as specific and narrow as possible. – Be specific about your business and about the information that is protected. For instance, if you attempt to claim that the names of your clients are to be protected, but you publish those same names on your web site for marketing purposes, it is highly unlikely that a Court will protect those client names. The broader and more vague the non-compete agreement, the less likely that a Court will find in your favor, should you ever have to enforce it.
- Be aware of the need for and the cost of enforcing it. – If a key employee leaves, goes to a competitor and shares your confidential information, you either must enforce the non-compete agreement [spending a lot of money to do so] or you need to ignore the violation [in which case, the value of that non-compete with future employees will have just plummeted].
I have often counseled clients to think long and hard before asking a new employee to sign a non-compete for this very reason. Failure to enforce due to the expense of doing so, renders those agreements practically valueless for that employee and for all those who follow.
What then, can you do to protect your business from a constantly moving workforce? Have you considered utilizing a non-solicit agreement? A well-drafted non-solicit agreement…
- … restricts the departing key employee from making direct or indirect contact with your company’s clients or fellow employees, to encourage a client or colleague from leaving your company and joining the company to which the departed employee has gone.
- … is often easier for a Court to support and enforce. The former employee and his new employer may both become targets if one encouraged or allowed the violation of an enforceable non-solicit agreement. So, you have deep pockets to pursue and perhaps more incentive to spend the money to do so.
- … is easier for an employee [and his potential new employer] to understand. It provides a time and geographic framework which is [or should be] clear and unambiguous, something which makes violations easier to spot and enforce.
Bottom line? There are practical and legally-enforceable ways to protect your company’s confidential information, provided that you invest the time and resources to do so. And, given the consequences of ignoring this issue, it is worth consideration, discussion with counsel and keeping a sharp eye on Beacon Hill!
