You Must Protect This House! – Non-Competes and More

Employers are struggling with not only finding quality employees but also protecting their interests when an employee leaves.  I get a call or question at least once a week about the enforceability of non-compete/non-solicit/confidentiality clauses.  It should be straightforward, right?  When you hire someone for a job, part of their agreement is that they won’t go work for your competitor and take all your secrets when they leave.  Seems straightforward.  Okay, that’s a bit simplistic and it is not that easy.  In fact, every State has their own rules related to these often used and misunderstood provisions that range from allowing them all the way to not allowing them at all.  To make matters even more complex, President Biden waded into this topic as well.  So, what are you supposed to do?  At a high level, here are the key components of a reasonable and enforceable non-compete:

What does it protect?

• Company trade secrets & confidential information
• Relationships with company clients, both existing and sometimes prospective
• Company-specific training and knowledge

What are the typical restrictions on the former employee?

• The former employee cannot go to a competitor company
• The former employee cannot start a competitor company that offers the same products or services
• The former employee cannot recruit former colleagues to join the competitor business

Is it enforceable (i.e, what do Courts look at)? 

• Does it protect your legitimate business interest?
• Is the time restriction reasonable?
• Is the geographic restriction reasonable?
• Was the employee provided some type of consideration in exchange for the non-compete?

The above items are high-level points that should be considered when implementing non-compete/non-solicit/confidentiality agreements with your employees.   As always, I strongly recommend you seek counsel from your team of professional advisors and staff who are knowledgeable in these types of agreements.

Below are some good articles that can provide more insight:

• FTC Considers Restricting the Use of Noncompete Clauses by Companies – WSJ
• Employee Non-Compete Agreements Come Under Fire in New York | Inc.com
• Employees, Here Are 4 Things You Should Know About Non-Compete Agreements (forbes.com)
• 50 State Desktop Reference (seyfarth.com)

Like Under Armour famously says in its advertisements – “You Must Protect This House!”, non-competes/non-solicits/confidentiality agreements can be an effective way for you to do just that.

Here are a few other things that may be of interest:

• Economic Review: Q2 2022 – Silvercrest (silvercrestgroup.com) (thanks to Sean O’Dowd for sharing)
• Webinar: An Economic Update in Turbulent Times (eisneramper.com) (June 24; 12-1pm)
• What are 4 Pillars of a Successful Franchise (eisneramper.com)
• SEC ESG proposal impacts on ESG integration funds (eisneramper.com)
• How US Oil and Gas Industry impacted by Russia and Ukraine War (eisneramper.com)

Helpful Resource Pages

• Knowledge Center (eisneramper.com)
• Trout CPA Blog | Tax & Business-Related Topics
• News & Analysis | Littler Mendelson P.C.
• Insights, Analysis & Perspectives for Your Business | RKL LLP (rklcpa.com)
• NFIB Research: Data and Trends Affecting Small Business Owners | NFIB
• The Tax Warrior Chronicles (taxwarriors.com)

As always, please don’t hesitate to email myself (jsanders@mpl-law.com), Andy Miller (amiller@mpl-law.com), Christian Miller (cmiller@mpl-law.com), Erik Spurlin (espurlin@mpl-law.com) or anyone in our office with questions or comments.  

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