Why Non-Competition Clauses Are Out

Almost every business owner wants a non-competition clause in their employee contracts. The idea is that employers don’t want employees to spin off and start competing with them. That sort of makes sense, but there is a lot of resistance to non-competition clauses in the courts and increasingly in state legislatures. From everyone’s point of view except the employer’s, these clauses restrict commerce and keep employees from practicing their trade/profession. So, non-competition clauses are often outlawed or rendered unenforceable by courts. What should employers do?

Think about what you really want to protect: It’s your intellectual property! You don’t want employees taking your customer and prospect lists, or your list of suppliers and independent contractors. Employees also should not take with them any training materials or internal documents. All those items are protected by trade secret laws, which courts and legislature are eager to enforce!

In addition, courts do not mind enforcing non-solicitation clauses—that is departing employees being prohibited from soliciting existing clients and trying to entice existing employees to join them in a new competing venture.

So, you need to have solid non-disclosure/non-use and non-solicitation agreements with all your employees. And whenever any employee leaves your company for any reason you should remind them of those agreements and what components of your business fall within those restrictions (name the documents and databases they cannot access or keep copies of after they leave).

But there is one more thing you can do to minimize the risk that your customers will desert your services in favor of that departing employee who’s going out on their own or joining your competitor:
Take good care of your customers as a team!

When a customer leaves you isn’t it usually because you have abdicated your role as the keeper of your customers? For example, it is often the case that service providers allow a single specific employee to control the interaction with one or more clients. That employee may be the only one in your company who interacts with a specific customer or group of customers.

Do not let your customers ever think that you have forgotten about them. Instead, you need to apply liberal doses if “Customer Care”. Establish processes that keep clients happy by interacting with more than one of your employees. Make it a team effort. Customers will be less likely to consider leaving a team they have established a positive relationship with to join that solitary employee who is leaving to start his own company.  You might also consider what you can do to keep good employees from leaving you, but that is a topic for a different conversation.

Bottom line: Don’t rely on non-competition clauses, they are an unreliable and heavy-handed way of achieving your desired goal, which is that departing employees cannot successfully poach your customers using what they learned while working for you. Protect your intellectual property and enhance your customer relationships.

Entrepreneurs are going to save the world, and Argent Place Law wants to help. That’s why we are a team of entrepreneur-lawyers serving Entrepreneurs just like you. Think how great it will be to have a legal team with entrepreneurial experience to call on when you meet with your partners to take advantage your strategic business opportunities. Call Argent Place Law to find out: 703-539-2518.