You invest a lot of time and money developing business, training your employees, introducing them to your firm’s clients and supporting them. When an employee leaves for greener pastures, you do not want that investment of time and money to go to a competitor down the street who starts taking your clients. You must consider whether you need non-compete agreements with your key employees.
Will they dislike signing non-compete agreements? Absolutely! Your current employees will not like being asked to sign a non-compete. You must explain why a non-compete is important to preserving your firm’s business. Tell your employees that you are examining what it takes for the business to be successful in the future and that non-compete agreements are one part of that future success. When in doubt, I tell my clients to blame the lawyers and tell them that the lawyers suggested it.
This is not an area where it pays to be cheap. Each state’s laws are different. A non-compete that works in North Carolina may not be enforceable in South Carolina. The non-compete you got from a friend at an architecture firm in Georgia, may not be enforceable in your state. You need to have an attorney review your draft of the non-compete or pay to have one prepared from scratch.
Because non-competition agreements are generally disfavored by the legislature and the courts, both of which support free market enterprise, your non-compete must be narrow and properly written. Here are the requirements in South Carolina:
- Consideration. The non-compete must be supported by consideration. Consideration means something of value. You cannot walk into an engineer’s office today and require them to sign a non-compete without providing something of value to support the agreement. If you want to start using non-compete agreements with your professional employees, have them sign a non-compete agreement as part of their initial paperwork when they start working. If you want to roll out non-competes for existing employees, ask them to sign an agreement in conjunction with a raise or bonus payment. A gift card to Starbucks will not be sufficient. Make sure you document the consideration given in the event there is a dispute later.
- Legitimate Business Interest. The non-compete must be necessary to protect a legitimate business interest. The agreement cannot be overly broad and keep someone from working again. Preserving relationships with existing clients is a legitimate business interest and you can limit an employee’s ability to call upon clients that your firm worked with while they were employed.
- Limited in Time. The agreement must have a reasonable time limit. In South Carolina, the outside limit is generally 2-3 years. You need to consider what limit your business truly needs for protection. If a former employee really could cause no harm to your business after 1 year, then your non-complete should be limited to 1 year.
- Limited in Geography. Likewise, you cannot limit a former employee from working anywhere. They have a right to earn a living. If your business is located in Greenville, South Carolina and most of your regular clients are in the Greenville area, the geographic scope of the agreement should preclude the employee from competing in Greenville County, South Carolina. Sure, you may have jobs out of the area from time-to-time, but can the employee really hurt your company if they work in one of those location?
- Unduly Harsh. The non-compete cannot be so harsh that it would require the employee to move or enter a different profession altogether.
- Public policy. This is a vague legal requirement that would allow a court to void a non-complete if it truly is unfair or would burden society like depriving your town of some vital service.
Non-compete agreements are a valuable tool to protect the investment your firm has made into developing its business. You should consider adding a well-drafted non-compete as part of your plans for future success. In future posts, we will discuss non-solicitation clauses that keep a departing employee from stealing your best people and confidentiality agreements that define and protect your confidential information. These types of agreements add additional protection to your firm.
If you have any questions about how using non-compete agreements might help your firm or business, we would be glad to help you. The attorneys of Gibbes Burton are passionate about helping professionals and businesses to minimize risk and build success.