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Better No Compete Agreements For Small Businesses
Written by Tim Morral
With anti-compete lawsuits on the rise, the NFIB offers entrepreneurs advice about how to protect their customers and proprietary information when an employee leaves the company.
Non-compete clauses and agreements have been around for a long time. With the right strategy, small businesses can use a non-compete agreement to secure their companies' protected information when key employees exit their businesses.
But not all non-compete clauses and agreements are the same. In fact, a poorly defined non-compete clause can leave your small business vulnerable to a lawsuit--and the National Federation of Independent Business (NFIB) says that the number of anti-compete lawsuits is on the rise.
Over the past two decades, the number of judicial non-compete decisions has tripled, highlighting the need for small business owners to exercise caution when they require workers to sign these types of agreements.
According to Beth Milito, senior executive counsel with the NFIB Legal Center, non-compete clauses can effectively limit a former employee's ability to work for a competitor in a specific geographic area, for a set period of time. Non-compete agreements can also prohibit workers from disclosing protected information related to the company's intellectual property.
However, non-compete clauses are not a blank check for employers. They have legal limits and transgression of those boundaries can trigger legal action. For example, it's not legally acceptable to force employees to seek employment outside their field.
"It is not okay to say that you will never work as a hairdresser ever again in this town," said Milito. "Courts do not like something that prohibits someone from having gainful employment. That's a public-policy thing. We want people to be able to be employed. That's part of the reason that in California non-competes are illegal. They cannot be enforced, because we do not want to prohibit employment."
Small business owners also need to know that timing matters. In general, non-compete clauses and agreements need to be presented to workers early in the employment lifecycle rather than at the last minute.
"I get calls from members who want to have an employee sign this when they give notice," added MIlito. "That is not going to float. So you have to do it when the person is first hired. You can make it a condition of employment, although in some states you must provide separate consideration, for example, a signing bonus. Basically, if the employee is giving up something, you need to give something in return, besides just a job."
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