Starting a business is a big investment – but it’s not just an investment of time and money. Fundamental ideas, infrastructure and intellectual property are equally important to the identity and success of your business. As a business owner, there is a legitimate concern that an employee might change his team at some point, and at the same time, share some of this vital information with a competitor.
Non-competition agreements are just as the name implies: an agreement between the employee and the employer that the worker will not switch jobs to work for a competitor. This usually includes specific time frames and geographies.
As we have already discussed, agreements serve many benefits for employers. However, it is also controversial because, in some cases, it limits employment opportunities for the employee. A unilateral contract is unlikely to be legally binding.
Risk, reward and reputation
Non-competitors can attract attention and negative reaction. Many of the stated disputes come in the tech industry, such as The ongoing lawsuit About an agreement between Amazon and its former vice president of product marketing, who left the company to rival Google. The non-competition argument deals with access to marketing practices and sales lists.
Questions raised in such a lawsuit include:
- Will the employee use confidential information in his new job?
- Are agreement restrictions unfairly restricting new opportunities?
As these typical questions illustrate, a non-competitor must balance the needs of the employer and the employee. You must take into account both perspectives and seek realistic solutions for both parties. In addition to these basics, there are several state laws. In Washington state, where a lawsuit has been filed against Amazon, one factor may be the employee’s salary. New York has similar, but different restrictions.
Delicate but important balance
The simple fact is that non-competitive agreements, like any employment contract, need careful consideration and a thorough legal review. In any scenario, a lawsuit or threat of legal action can be prohibitively expensive for business operations, so it is essential to update contracts with ever-changing state and federal laws.
Losing an employee is really expensive, but an additional lawsuit can be much more expensive. The damages are not just financial. Public dispute hurts company morale and general and professional brand reputation.
A business needs to protect its most valuable assets, but non-competitive agreements can be a very sensitive issue. They provide important security of confidential information and practices, but a bad deal may demand too much of an employee and ultimately cause harm rather than prevent it. Like any other security measure, all employee contracts must be carefully reviewed before signing.