Berry Moorman

Make Your Non-Compete Agreement Stick

Make Your Non-Compete Agreement Stick

Increasingly, employers are asking employees to sign agreements which are intended to restrict their post-employment competitive activities.

If you are seriously concerned about what your employees may do after they leave you, here are some things you need to know about non-compete agreements that will help you make them stick:

  1. Don’t just push it across the desk and say, “Sign it.” Go through the document and, at the key provisions, read them aloud. Keep asking if the signer understands.
  2. If the person you are dealing with is going to have a separate written employment contract, include the non-competition provision in that document.
  3. Do not have everyone in the organization sign the non-compete. Obviously, the higher up the employee is in your organization, the more likely it is that he or she will have access to your confidential business information. Court’s take this factor into account. Key employees are more likely to be held to these agreements.
  4. Get the non-compete agreement signed before the employee starts work. In other settings (change of policy, etc.), if the non-compete agreement is signed at the same time the employee receives something additional “bonus, pay raise, promotion, etc.” there is a much better chance a court will enforce it.
  5. A standardized form is not as strong as one tailored to fit the particular employee. Would a financial person have access to technical engineering information? Should a colon/rectal surgeon be precluded from doing any general surgery? Be sure the language of the non-compete agreement is clear and not so broad and generic as to be vague and not easily understood.
  6. Take care of the confidential information you are trying to protect with the non-compete agreement. This issue is broad enough for another discussion by itself, but the essence is to limit access to the files (both by employees and outsiders) and by marking documents as “confidential and property of.” Don’t put stuff on your website or in your sales literature that you may later want to claim is covered by the non-compete.
  7. Make sure the scope of the non-compete agreement is “reasonable.” The Michigan statute specifically requires that limitations imposed by such agreements be reasonable as to duration, geographic area and type of employment or line of business. If you overreach 5 years, worldwide, you risk non-enforceability.
  8. Consider compensating the employee during the post-employment non-compete period. You may condition these payments on evidence from the employee that he is engaged in a diligent job search. This can be provided for in the non-compete agreement itself or in a severance agreement where you are providing severance benefits not otherwise required by your policies or by employment contract.
  9. Be sure the employee actually signs the non-compete agreement. It may not be good enough simply to include the noncompete language in a policy statement or employee handbook.

There are other considerations, of course. Perhaps the first thing you need to consider is what you will do if a former employee leaves and goes to work for a direct competitor doing exactly what he was doing for you. Is it your intention to enforce the non-compete agreement? Are you going to harness up the legal team and go after the former employee and your competitor? A court may also consider this factor if it is being asked to enforce your non-compete and you have been inconsistent in taking this action before. Your innate reluctance to engage in litigation may dictate a more limited use of the non-compete agreement at the outset.