In the face of a growing economy and new technologies being introduced on a daily basis a non-compete has become an essential part of the technology sector. In those states that permit restrictive covenants, non-competes are essential to maintain a competitive advantage and helps to discourage employee espionage. In competitive industries especially in sales environments or industries where the information is extremely valuable, a non-compete is a best defense against your competition when your employee leaves an organization.
I was reminded of the importance of employer non-competes for companies to use as an intellectual property and company protection tool after reading Dan Schawbel’s article on his opinion that non-competes are on the decline and should be illegal. As an organizational manager, I can speak from experience that our greatest fear is to loose our star employee. Yet, even worse is than loosing your best sales person only to have your customers targeted by your former employee lured away having your ex-employee know every play in your business play book. This is why non-competes are essential to protecting the profitability of your organization, not necessarily the livelihood of your employee.
One of the most well known cases involving intellectual property was Mattel vs. Bratz where developer, Carter Bryant, was order to pay damages to Mattel for trying to create the Bratz brand while still working for their company. Mattel won and order the creator to pay back damages worth hundreds of millions. While non-compete clauses might seem harsh in the eyes of a job seeker, it’s an essential piece of protection for any company in a highly competitive industry. Trade secrets, top talent, and protection from competitors are important reasons companies are now leveraging the use of a non-compete clause in any standard employment contract. When an employee works at a company and develops an idea, they don’t own the rights to that idea unless you are Mark Zuckerberg and then you settle in court.
There are countless cases involving social media and who owns LinkedIn connections and Twitter followers. These are all somehow tied into who owns what when an employee leaves. If you are an employer and are looking for a guaranteed media frenzy, sue your employees for the right to own their Twitter followers after they leave. It won’t be positive but all press is good press, right?
Having a solid legal foundation in place when it comes to your employee protects but doesn’t guarantee the employer. It also sends a message to your competition, clients, and candidates that you mean business.
- Protection of Trade Secrets. Any type of valuable business information that you are trying to keep a secret from competitors is subject to trade secret protection. Maybe you are wondering if there is a difference between non competes and protecting your trade secrets. Putting safeguards in place not only protects this information, but it shows interested parties that you’ve attempted to keep your idea an actual secret. A widely recognized precaution includes requiring employees to agree not to use or disclose confidential information. Having non-compete clauses in your employment contract is taking an extra step in keeping your company trade secrets, a secret. Plus, there’s this little thing called an invention assignment clause when it comes to work for hires. Tricky, complicated stuff. That’s why I call my favorite lawyer for the skinny. He steers me in the best direction to chat with specific attorneys who specialize in the complicated world of this kind of thing.
- Enhance the Value of Your Company. Enhance the Value of Your Company. Like most startups in Silicon Valley, you want to be sold or acquired at some point in your company’s lifecycle. Owners and significant investor-employees (think stock options) can be prohibited from competing against the new owner through non-competes. California Business and Professions Code Section 16600 prohibits restrictions on an employee’s right to compete unless the restriction is tied to the sale of a business or the employee is selling a significant amount of stock back to the company as he or she walks out the door. Protecting the value of your company by requiring these employees to sign restrictive non-complete causes is more important then ever. When in connection with the sale of a business because the purchaser someone purchases a business they want wants to be assured that they are getting what they paid for. If they believe that key assets have been shared with competitors the value of your business declines quickly. Whenever you start a business, have owners, partners or key investor employees employees sign non-compete clauses because afterthought covenants are a legal battle of their own.
- Deter Competitors from Hiring Employees. A non-compete clause won’t fully protect your competitors from hiring your employees, but having access to confidential information or customer relationships is another story. Sending a message to your competitors that you are prepared to protect these interests is a nice side effect to the changing competitor culture.
Protecting Your Work Assets Like Marissa Mayer
A non-compete clause or other assignment of inventions clause doesn’t have to seem like an evil thing that companies do to end all outside engagement. Then again, we know exactly how the press and Yahoo employees feel about the recent HR decree from CEO Marissa Mayer ending telework. A non-compete is not an employee retention tool. An employee non compete agreement is a company protection document and mechanism pure and simple just like signing your employee handbook acknowledgement. Non-competes do not guarantee that if used in good faith an employee will stay loyal to a company and not destroy the company from the inside out. A policy, document or corporate decree doesn’t change the company culture, bad work environment or shoddy way of doing things. There are many benefits to the company and even to the job seeker when it comes to non competes. There are also perils too so check your state requirements when it comes to non competes. Don’t look at a non-compete as a contract to hold back your employees, but to give them the freedom to develop and excel at the products offered by your own company. Protecting your assets is just good business sense especially when your employees know what those boundaries are. Now, back to working in my virtual home office.
What’s your experience with Non Competes? Have you had a non compete go bad or a work story you care to share? As a business leader, have you ever had a situation when you had to involve legal or go to court?
Photo Credit Big Stock Photo.
Article by Jessica Miller-Merrell
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