Protecting Your Business From The Competition

A major concern for employers is that an employee will take what they learn, and immediately leave that business and either work for a competitor or start their own similar business trying to steal clients.

In this case, how does an employer protect themselves and their business? Having an employee sign a non-competition agreement is one way, as Partner Clay Williams explains the ins and outs and how an employee can protect themselves on the other side.

Transcript:

One of the things that my clients ask me a lot is how to protect their business when they're hiring a new sales-man or somebody that is going to go out and represent their business and meet their clients. How do they protect their business from that employee going out and setting up their own business and stealing their clients?

The answer is a properly drafted non-competition and or a non solicitation clause in an employment agreement. A non-competition clause prevents an employee from going out and competing at all, while a non solicitation clause is more limited and prevents an employee from going out and soliciting your clients.

Now it's a tricky drafting procedure because courts don't like either clause. A court feels that those clauses actually restrain trade, and a court feels that an employee should be able to go out and use the skills they learn in their employment at some point to compete and go out and create new businesses. Courts feel that's good for the economy, but a strong agreement can be done, it just needs to be properly drafted. With respect to non-competition agreement, it has to be very narrowly defined as to what it is they're prevented the employee from doing. In some cases, a non-competition clause can be so narrow as to say look, you can't go to work for a competitor on the same street. In other cases it's wider, but it has to be well thought out and there needs to be some skill applied.

A solicitation clause can be a little wider, but there does need to be some limits, temporal limits, and some geographical limits on it as well. So it can be done, but it's something that needs to really be considered.

The converse of that is that I'll have employees come to me and say, well, I've signed one of those agreements I want to go work for a competitor or I want to go and start up my own competing business, but I've signed this employment agreement that ostensibly prevents me from doing so.

Well it's worth coming to talk to me about those things, because again, if those agreements aren't narrowly defined, then a court may find them to be void. So very often I can provide an opinion that in fact they would be free to go ahead and compete. They would be free even to solicit at times or we could narrowly define what it means to solicit so in either of those situations, that's something that FH&P Lawyers can help you with.