How to protect against employees who steal your customers

It’s every employer’s worst nightmare.  A valued employee leaves and opens shop across town and starts competing with you.  They not only hire away some of your employees, they steal your customers too.    

One way to protect your business is to have new employees sign non-compete and confidentiality agreements.  The non-compete portion will help protect against them opening shop and competing against you.  The confidentiality provisions help to insure that they can’t use your valuable trade secret information without your permission.

To be enforceable, a non-compete agreement must balance the potential for unfair competition against an individual’s right to earn a living. That means they must be reasonable in scope and duration – two factors that are defined by the jurisdictions where you operate.

Generally speaking, let’s say you own an employment agency and serve a tri-state area.  In that case it would unfair to prohibit someone from ever opening an employment agency anywhere in the United States – the geographic scope is too broad and the duration infinite.  Your business is regional.  The likelihood of them causing you harm if they operate in a different region that does not overlap or neighbor yours is slim.

What’s fair and reasonable can vary from state to state, therefore check with your lawyer before adopting any non-compete agreement. 

What if you have existing employees that you want to sign a non-compete agreement?  Some states require additional consideration beyond the promise of letting them keep their current jobs.  Again, please check with your lawyer. 

In California non-compete agreements are unenforceable as a matter of public policy.  If you operate there your best bet is to rely more on confidentiality agreements instead.   

Sometimes managers wonder whether legal mumbo jumbo of non-compete or confidentiality agreements really make a difference.  After all, it sounds like a lot of junk.  Cynics will say that any chump will sign them and then do what they want.

Are they really worth the paper they’re printed on?  Yes they are. 

Take for example the case of a young engineer who signed a noncompete agreement with a firm she joined in September of 2005.  By March 2006 she decided to strike out on her own and one of her initial clients was one from the firm she was leaving.  The employer claimed the engineer’s actions caused the client to break an existing contract with the firm and violated the engineer’s noncompete agreement.  The court agreed and ruled the engineer must pay $89,000 to the former employer.