Non-Compete Agreements: Should Your Company Have One?

A recent news story discussed a sandwich restaurant chain requiring its workers to sign non-compete agreements, which essentially state that if a worker leaves, they cannot get a new job at another sandwich restaurant chain within 3 miles of the restaurant for two years. Members of Congress are now asking the Department of Labor  and the Federal Trade Commission to investigate this policy.

While this example seems to be pushing the envelope for non-compete agreements, employers should remember that all employees will discover and learn aspects about their jobs and about your company that may become a particularly sensitive issue when an employee leaves the company. While depending on state laws, employers can add a certain amount of protection through the use of properly written non-compete agreements.

It is generally understood that a former employee may eventually be in a new job position that could be in competition with the former employer. For example, an electrician may not necessarily prevent a former apprentice from opening up his or her own business in the same neighborhood. However, an employer may restrict the former employee from entering into a certain scope of competition through a covenant not to compete. Since specific restrictions and steps can apply, such agreements and covenants should be reviewed by an attorney.

In determining whether or not entering a non-compete arrangement makes sense for your business, the agreement should:

• Be crucial to protect the interests and survival of the business.
• Not limit the employee in a manner that goes beyond what is reasonable to protect your business interests. (Example: If your CPA firm focuses on clients in Arizona, then restricting the former employee from practicing in Florida would be deemed unreasonable.)
• Not subject the public with a loss of access to the former’s employee’s service or skill.
• Be a legitimate binding contract such that the former employee receives something in return by signing such an agreement (i.e. monetary compensation).

For more information, contact the HR professionals at GTM at (518) 373-4111.