Do I need to have my employees sign non compete agreements?
Does your company need to have its employees sign noncompete agreements? If your company fits into any of these categories, the answer is almost certainly “Yes.”
- I have clients that I need to protect. Some of these clients have been with me for years, and we have, through hard work over a period of time, developed good relationships with these clients, come to understand their preferences, etc. It would be devastating to my business if an employee could leave and “steal” my clients.
- I have some great employees whom I have developed and trained. I have spent money to train them. I have shared with these employees my methods and experience. If I were to lose my employees to a competitor, it would severely harm my business.
- I have confidential records and databases, such as a client list, which would be extremely useful to a competitor. If one of my employees were to leave and share this information with a competitor, the harmful effects to my business could be substantial.
- I have developed some truly secret and proprietary methods which, if known by a competitor, would allow the competitor to harm me.
- The prices that I charge clients, or the prices that I pay vendors, are secret. I need to be able to keep these from a competitor.
- I have contracts with clients. If these were interfered with, my business could be harmed.
If you answered “yes” to at least one of these, then you probably need to have your employees sign noncompete agreements. Here are some common myths/objections that keep companies from requiring employees to sign noncompete agreements:
- “Texas is a right-to-work state. Noncompete agreements are unenforceable here.”
“Right to work” is a labor union concept. It has nothing to do with whether noncompete agreements are enforceable (they are).
- “I don’t want to keep people from earning a living.”
Just because an ex-employee of yours violates a noncompete agreement doesn’t mean that you must sue them. Each situation is different, and you may decide that you only want to pursue ex-employees who do other bad things, such as soliciting your clients, hiring your employees, etc. But you want your employees to be bound by noncompetes for two reasons: to deter “bad” conduct (other than mere competition), and to allow you to protect your business if they engage in other conduct that may harm your company.
- “I’m not sure my employees will sign them.”
If they are at-will employees, you can make the signing of the agreement a condition of continued employment.
- “I don’t want to give them extra compensation, or a promotion, as consideration for them signing it.”
You do not have to. That’s not a requirement.
- “I don’t have money to spend on a noncompete.”
This is definitely a situation where “an ounce of prevention is worth a pound of cure.” If one of your ex-employees starts “stealing” your clients, you’ll wish you had a signed noncompete agreement on file. Besides, it’s not that expensive to have one drafted.