Non-compete Clauses: 5 Problems You Can Face

On the surface, a non-compete clause sounds like a great situation: you can make sure that if your employees leave your business, there’s no way that they can take what they know to one of your competitors or start up a competing business of their own. But, unless you have a particularly well-written non-compete clause, it may not be as helpful as you’d like. Non-compete clauses have their problems, and it’s important to be aware of them from the start.

1. It’s difficult to enforce non-compete clauses: If you do find out that an ex-employee has gone to work for a competitor (and you may not always know), enforcing the non-compete clause may mean taking the matter to court. The cost in time and money may not be worth the benefit of keeping someone out of the game. And, even if it is worth the effort, a court may not automatically uphold your contract.
2. Your non-compete clause may not be specific enough: Unless a non-compete clause is very specific, many judges will rule that the clause is too broad. It can seem like a clause is meant to put a leaving employee in a position where he or she cannot work. Unless you lay out very specific geographic areas where an ex-employee cannot compete, as well as set out a length of time (typically less than five years) that the non-compete clause will last.
3. Your non-compete clause may not apply: Depending on how the clause is phrased, a job somewhat similar to what a departing employee used to do may still be fair game. Because a non-compete clause has to be specific for it to be enforceable, that leaves a lot of room that a non-compete clause can’t cover in terms of related jobs.
4. Geography is becoming more of an issue: Is an ex-employee who is running a business similar to your own online competing with you? What about if he’s not targeting customers in your area? There are still some questions that are growing out of the way that online businesses deal with locality.
5. You may not know about all the competition: Depending on where your business is based, you may not know that your past employees have joined another company (that may compete with yours) until it’s too late. Trying to keep track of every ex-employee is usually just not practical.

If you’re having trouble drafting a non-compete clause or any other part of an employee contract, it’s worthwhile to consult a lawyer. It can be tough to adequately address these issues, especially if you don’t have a background in employment law. The fact that you have to think about them before you even hire an employee in the first place just makes things more complicated. It’s also worth considering that agreeing to leave out a non-compete clause can turn into a bargaining chip when bringing in a new employee. It may be worth offering up that bargaining chip in exchange for something more important (and more enforceable) in a new employee’s contract.

Image by Flickr user calbeeb

This entry was posted on Thursday, July 15th, 2010 at 8:00 am and is filed under Workforce. You can follow any responses to this entry through the RSS 2.0 feed.


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