graphic for The 2018 Index of Predictive Tools in HRTech: The Emergence of Intelligent Software

 

You can't really protect either your clients or your trade secrets with noncompetes.

You can’t really protect either your clients or your trade secrets with noncompetes.

The most questions I get relate to noncompete agreements.

Noncompete agreements are bad for everyone. Employers like to make people sign them because they think they are protecting trade secrets. But it’s rare that any of those things are truly secret. If you don’t have legitimate secrets that can be legally protected, then you’re really just messing with people’s ability to make a living and pay the bills. And well, that’s a mean, rotten thing to do.

Don’t be a weasel.

Noncompete agreements generally prohibit an employee from working in the same business, for a certain time, within a certain geographic area. Often, they also contain a nondisclosure clause that protects the company’s trade secrets, and a non-solicitation clause that prevents a departing employee from taking clients, staff or colleagues with him. These types of agreements are called restrictive covenants, which would be a great name for a band. They are not so great for business.

  1. They May Not Be Enforceable.  A handful of states either won’t enforce, or rarely enforce, noncompete agreements. In California, they are against public policy, and trying to enforce one can get you sanctioned.  And just because your company is located in a state that recognizes noncompete agreements, it’s the law of the state where your employees work that generally applies to those employees. So if you have employees all over, and most large companies do, the agreements may not mean what you think they mean.
  2. Client Lists Are Not Secrets.  Noncompete agreements often arise when a key salesperson goes to a competitor taking the clients with her. It used to be that having detailed client contact information could be a trade secret because it was hard to recreate that information from outside sources. Now there is Google. So it is becoming more and more difficult to claim that a client list or client information is a trade secret.
  3. Neither Clients nor Employees are Property. Owning people was outlawed by the 13th Amendment to the United States Constitution. So as much as we would like to think our clients, or employees, or followers, or contacts, or connections are “ours,” they’re not. They are free to come and go as they please. While there may be rules about when soliciting them to leave is or is not okay, fundamentally, they will do what they want. And putting clients or employees in the middle of litigation to try to keep them is a stupid way to do business.
  4. Your Trade Secrets are Secret For About 27 Days. Or minutes. Really, the secret way of doing almost anything is over. And new ways of doing your thing, and the next thing, are being invented faster than anyone can keep up. Why are you focused on the rear-view mirror and trying to protect something that will be obsolete long before the lawsuit is over?
  5. Litigation is Expensive and Nobody Wins Except the Lawyers. Even in states where noncompetes are recognized, they can only restrict competition when there truly is a trade secret to protect, and with the most narrow time and location restrictions needed to protect that interest. Lawyers never draft that agreement. Lawyers draft agreements to cover every possible situation, and to scare people. So the employer ends up with a broad, draconian document that they usually can’t justify under the real situation. This leaves the court with 2 options: 1) find the agreement isn’t enforceable at all; or 2) rewrite the agreement to a shorter time with a clearer more specific description of what the person can and cannot do while the restriction is in effect. Judges don’t like doing lawyers’ work for them, and never volunteer to do it. So the only way to get a judge to rewrite a noncompete agreement is to go through a very long, expensive trial. This generally takes more time than an enforceable noncompete agreement. So you just spent a boatload of money on litigation and attorneys’ fees to win a lawsuit that no longer matters.

So get rid of your noncompete agreements. While you’re at it, get rid of all the rest of the restrictive covenants that you make people sign because you might need them. Unless you are protecting something like the formula for Coke, you probably don’t have secrets that can legally be protected anyway.

If you want to keep clients, don’t mess with your employees. Instead, create a great product or service, care about the work and people doing it, and be smart, compassionate, and focused on your business.

graphic for The 2018 Index of Predictive Tools in HRTech: The Emergence of Intelligent Software


 
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