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Philip L. Chapman, Esq.
Lum, Drasco & Positan, LLC
103 Eisenhower Parkway
Roseland, NJ 07068

(973) 228-6786
pchapman@lumlaw.com

 

You put a great deal into hiring a new staff member whom you believe will become a top producing business development person and asset to your company. You follow your investment in the hiring process with an additional investment – training, molding, guiding, and encouraging – to produce a productive employee you can trust. Now, that you have him or her, how do you make certain you don’t loose the benefits of your investment to your competition? There are several things that you can do to keep that employee, along with all your knowledge and secrets, working on your side of the business.

The Handcuffs of a Non-Compete Agreement: Many companies are under the assumption that non-compete agreements are not enforceable.  This assumption is wrong-State law, rather than federal law, is what determines the enforceability of the  non-compete agreement; so the effectiveness of these documents varies . In addition, the type of agreement may determine the extent of a company’s rights against a former employee. 

Territorial non-compete agreements establish, by way of geographic descriptors, an area within which the former staff member cannot work. The “Restricted Territory”can be defined as a radius of miles from the company’s location, or by counties or states. The prohibited areas will be dependent upon the nature of your business and its relationship to your customers.

Non-compete agreements restrict the former employee from working in the same industry for a specific period of time (the “Restriction Period”). Frequently, one to two year restrictions are imposed. 

The “Restricted Activities” may go beyond a Territorial Restriction or may be limited to specific competitors. In some instances, there will be no territorial restriction, rather the prohibition on non-competition will be with respect to specific customers. Companies that are nationwide in their relationships with customers most often use this type of non-compete agreement

Some non-compete agreements go further and  limit the former employee’s ability to work in the same industry at all (the “Restricted Activities”). Within the supply chain and logistics industry, this may take two forms. First, the contract might restrict  the individual from working any where  in the same industry  for him or herself or for or with any  company. The other version of the restriction  might be the individual’s avoidance of employment with other sector specific industries. The premise of these restrictions is to prevent the former business development person from revealing trade secrets, business strategies, pricing strategies, or other confidential information that this person may have been privy to during their tenure with your company.

Picking the correct type of non-compete may also affect its enforceability. Judges look to  several factors to see if the restrictions as to time, territory, and activities are within reason, given the competitive structure of the employer’s business and the employee’s functions prior to leaving..

There is a substantial risk that a non-competition agreement which is over-reaching as to the time, territory and activities may not be enforced even as to a time period, a territory or an activity that could fairly have been y been restricted.

Don’t forget there are negative aspects of non-compete agreements. Generally, this document will not prevent someone from taking another position with the competition. Some will not give the document a second thought, and others will assume it will not hold up in court. You need to consider the psychological effects to the morale of the current employee roster. In addition to the financial expense of pursuing a violated agreement, think about the impact if you actually lose.

The Handcuffs of Longevity: There are multiple ways to induce individuals to stay with a company long after the love is gone. Bonus plans with long-term payouts and vesting programs that require  the employee to be with the company for a certain length of time before reaping rewards they have earned may lock in employees.

The Velvet Ropes of Appreciation: As so many managers worry about the legal ways with which they can force staff members to stay, the strongest and most durable is to express your appreciation for what they do. Here are some ideas:

Commission structures should be fair to both the company and the hard working staff member who made the sale. This should not imply that you give away the profits, but you should not take advantage of someone’s employment either. Track the commission structure offered by your competitors to assure that you stay equitable.

ESOP – employee stock ownership programs – can be an excellent way toreward staff members for their loyalty to the company and build pride by ownership. In exchange for their hard work and contributions, they get a little piece of the company. This will inspire them to work even harder so they can now contribute to their stock increasing in value.

Profit sharing is another way to reward employees by sharing the fruits of their labor with them. Extra perks can sometimes work as symbols of appreciation. Things such as laptop computers, cell phones, or a company car can help an employee feel that what they are doing for the company matters.

But, it’s not all about the money. It really is the little things that you and the company do that make the most differences in an individual’s feelings toward their company. When they feel appreciated, they want to do a better job. These individuals are employees who will go that extra mile for you. And they would never think of leaving.

So, as you make your plans to build your company with dedicated staff members, keep in mind that, in addition to your hiring plan, and training plan, you need a plan to keep them on board.

Hear Mr. Chapman ‘live’ on a Sky Radio Network re-broadcast discussing non-compete agreements