Recently, a long-time client – a successful, medium-sized contractor – called looking for a solution.
“Can I stop my salesperson from stealing my customers?”
“Did they sign a contract?”
“Any kind of employee handbook?”
“Did they sign a severance agreement”
“Severance? Why would I give that jerk more money? Besides, this is wrong. How can they steal everything I’ve built after the opportunities I’ve given them?
Every day, employees decide they can make more if they take some customers and leave. While there are other possibilities, a business’ chances of stopping that employee from poaching customers are much higher with a solid contract that restricts them from poaching (i.e., “soliciting”), talking trash (i.e. “disparaging”) or competing (i.e., “competing”). Lawyers call these “restrictive covenants,” but they’re nothing more than an agreement that an employee won’t do certain things after they leave their job. For convenience, I’ll call them all “non-competes.”
Are they even enforceable?
Yes. Florida law is clear that these types of contracts are enforceable, though there are limits. Two years is generally the longest time frame. You can’t usually stop an employee from competing in geographic areas where you don’t have a presence. And you can’t stop an employee from doing things you don’t do. This makes sense, because an employer doesn’t have much interest stopping an employee from working in another place or a different industry. And stopping them from working forever just isn’t fair.
Won’t the employees hate it?
In my experience, most employees sign non-competes without too much fuss, and the ones who won’t may be signaling that they aren’t loyal. Nowadays, most employees expect it. Another option is to pay each employee a small, but reasonable signing bonus. This will make the medicine go down easier and help enforce it later on.
Aren’t they expensive to enforce?
Sometimes. But non-competes serve two purposes. First, if an ex-employee with a non-compete tries to poach a customer, you can sue and get a judge to order them to stop. This approach can take time and money. The second purpose is passive. The threat of a noncompete will prevent a portion of would-be trouble-makers from taking the chance. If a lawsuit is necessary, any decent non-compete will allow the employer to get their legal expenses back, as well as a judgment for lost profits. That said, employers shouldn’t count on these lawsuits paying off. Most ex-employees aren’t flush with cash, so I advise conserving resources and filing suit only when the ex-employee is doing enough damage to make the legal expense and hassle worthwhile. It is also common for ex-employees to offer significant sums to buy out their non-competes. I’ve found this especially common in the health care field.
All my employees already sign non-competes, leave me alone.
That’s a great first step, but judges won’t always take a legal document at face value. Usually, they want to see why it’s so important for you to stop these ex-employees from competing (which, after all, is anti-capitalistic) and serving long-time customers (who must like the ex-employee, or what’s the point?).
What else can I do?
- Embrace severance payments. Swallow your pride and make it standard practice to pay severance to departing employees. The options are limitless. Whatever severance you pay is likely money you won’t have to pay your lawyer, either because you won’t need to call or because it’ll be cheaper to enforce your non-compete if you do.
- Have an employee handbook. Despite what you’ve heard, employee handbooks are, if well-written, totally enforceable. You can even include a non-compete, among lots of other valuable things. Just make sure everyone signs.
- Keep your secrets secret. This helps even if you don’t have a non-compete. Often, businesses want to stop ex-employees from using or spreading proprietary information (e.g. customer list, software settings and techniques), but don’t have any written contract. The law gives businesses a tool for this situation, but before a judge will order an ex-employee to stop using your information, you must show that you’ve kept it secret. In practice, this can mean confidentiality agreements, password-protecting databases and limiting access to those with a need to know.
These practices will prevent problems before they start, reducing the frequency and length of phone calls to your lawyer, and your chances of success if you must to go court. But the real point is to make sure that your hard work and investment don’t walk out with the next rogue employee. Like them or not, non-competes aren’t going away, and in today’s transient workplace, they’re must-haves for nearly every business, new, old, large, and small.