May 4, 2023
Episode 116. What’s a Non-Compete Agreement & Can I Use One?
Episode 116. What’s a Non-Compete Agreement & Can I Use One?
In this episode of Sam’s Sidebar Q&A, Henri asks:
How do you go about getting a non-compete from someone after you’ve stopped working with them?
Great question — let’s dive into it!
In this episode, you’ll hear…
- What a non-compete agreement is
- Whether or not you would be able to enforce a non-compete
- Alternatives to non-competes that could serve you better
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What is a non-compete agreement / clause?
Employers use non-compete clauses/agreement to keep their employees from being able to work for competitors for (a) a limited period of time, (b) within a certain geographic location, and (c) for a specific area of expertise/work.
Some states don’t allow non-competes at all (looking at you CA, ND, OK). Others have no ban at all. Others only ban certain professions or low-wage workers from being subject to non-competes.
Basically, non-competes are super tricky.
Oh and we haven’t even talked about non-competes for contractors yet — woooof! That’s even stickier (and probably not a good legal idea).
So here’s the deal
If you’re really concerned about an employee working for a competitor and you’d like to explore a non-compete agreement — get it in place before or while they work for you.
There needs to be what we call “consideration” in exchange for signing a non-compete – which when hiring them is the offer/salary, and while continuously employed is continuous employment/salary.
Non-competes should be carefully crafted by an attorney in your area who understands what your state’s laws are around them. They will also be familiar with your employee’s state’s situation.
And don’t forget about non-solicitation and non-disclosure clauses too 🙂 (You’re bringing me back to my corporate lawyer days, Henri, where I used to write these all the time!)
Sam Vander Wielen: Hey. It’s Sam Vander Wielen. Welcome back to another episode of On Your Terms. This episode is going to be tackling a legal question about non-competes, which I’m really excited to talk about because there’s actually a lot of development and stuff going on with non-competes right now.
So, let’s hop in and talk – actually, wait. I can’t hop in and talk about it. I’ve got to give you a Norm Tip. So, if you missed it in my last episode, I told you that because this month is the month that my dad passed away last year, I’m going to be doing a little Norm Tip at the beginning of every single episode.
So, this tip is going to be from Norm to you all about Costco, his other favorite place. Earlier this week, it was about Trader Joe’s. Now Costco, his other favorite place. So, my dad was just adamant that if you saw something at Costco that you liked, you had to buy it, you had to return it, it was fine. But his go-to phrase was if you see something at Costco and you like it, you got to get it. And so, we would always say that because he would just harp on about how things at Costco would rotate in and out and you never knew if it was going to come back, and blah, blah, blah.
He also taught me that when prices end in a 97, it means that they’re moving it out, they’re phasing it out, they’re not going to have any more of it, there’s no more stock coming. So, that was just a really funny thing, but I think about it every single time I go to Costco and I’m like, "Should I get it? Should I not get it? If you see something at Costco, you got to get it." So, that’s what I do. And they have a really good return policy if you really end up not needing it.
All right. Let’s get into this week’s question from Henry. Henry asks, "How do you go about getting a non-compete from someone after you’ve stopped working with them?" That’s such a good question, Henry. So, you probably don’t go after somebody to get them sign a non-compete afterwards. You could always go speak to your own lawyer, of course, to see if, for some reason, your circumstances allow it.
But, first, let’s dive into what’s a non-compete agreement, what’s a non-compete clause. So, employers use non-compete clauses and agreements to keep their employees from being able to work with competitors or to start a business of their own that becomes a competitor for (A) a limited period of time, (B) within a certain geographic location, and (C) for a specific area of expertise or work.
So, you can’t block people, you know, if you’re a doctor’s office and you have a non-compete with your other doctors, you can’t say that they can never go become a plumber. It would be specific to being a competitor to that exact work. And so, that’s actually a funny example because I used to do a lot of non-compete work when I was at the firm for physicians, and a lot of times states wouldn’t even actually enforce those non-competes because there are also public policy thoughts about how, let’s say, for example, I handled a case about a nephrologist once and they needed more nephrologists in this area, the kidney doctors. And so, they needed more nephrologists in this area and public policy did not allow for you to block somebody from working in an area where nephrology was really, really needed. You know, it’s a public health crisis. So, it’s just interesting.
But that’s essentially how we think of non-competes, it’s for a limited period of time within a certain geographic location and for a specific area of expertise. So, some states, though, don’t allow non-competes at all. Here’s looking at you California, North Dakota, Oklahoma. Others have no ban at all, they allow non-competes. Others only ban certain professions or they ban low wage workers from being subject to non-compete. So, it really depends on where you live.
I think in a nutshell, non-competes are super tricky and we haven’t even talked about the fact that non-competes are even trickier for contractors. That’s an even stickier, I think, area. It’s probably not really a good idea. When people reach out to me and they ask me about non-competes with contractors, I’m always like, "Well, I hope that’s not because you’re treating them like an employee." And I have an episode about that which I can link to below. I have an episode about making sure you’re treating people like employees versus independent contractors.
So, here’s the deal, if you’re really concerned about an employee working for a competitor and you want to explore a non-compete agreement with them, you want to get it in place before or while they work with you or for you. There needs to be what we call in the law consideration in exchange for signing a non-compete. So, that’s when hiring them is the offer or the salary. And then, while continuously employed, it’s offering them continuous employment and continuing to offer them their salary if they sign this thing in exchange for taking the job or continuing to perform the job.
Non-competes should also be carefully drafted by an attorney in your area who understands what your state’s laws are around them, and then also the state’s law of wherever your employee is, if they’re virtual. They should also be familiar or at least able to research your employees’ state situation.
And I often think that for whatever reason, non-competes get a lot of attention, but you don’t want to forget about non-solicitation and nondisclosure clauses too. So, non-solicitation clauses are ones that you can put in place that keep the person, the employee from being able to solicit your customers and/or your other employees and contractors.
So, sometimes when people leave a company, they’ll try to take a bunch of your employees with you. Or if they were leaving to start their own company, they could contact a lot of your clients and try to take your clients. It also includes not just your actual clients, but people on your email list, all that kind of stuff. So, I think non-solicitation is just as important as non-compete.
Nondisclosure clauses, it’s essentially a confidentiality clause where they’re required to keep what they’ve learned from working with you and what’s really your secret sauce. Not general knowledge, but your trade secrets, your customer list, your processes, all that kind of stuff. They are not allowed to share with other people and they can’t use for themselves. So, non-solicitation and non-disclosure clauses are just as important as non-competes, if not, maybe more sometimes. So, I would definitely think about all of those.
I hope that this was helpful. I will link to that episode below about the employee independent contractor breakdown because that’s an important, I think, add-on to having this conversation. I hope that this was helpful. If you listen to the show and you like it, please leave a quick rating or review wherever you listen to podcasts. And I can’t wait to see you here next week.
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Resources Discussed in This Episode
- Episode 61. Hiring Contractors 101 [Everything Business Owners Need to Know]
- Submit your legal question for an upcoming episode of On Your Terms™
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