If you want to have a non-compete agreement, you can do that with an employee . . . but not an independent contractor. Remember, you can’t control an INDEPENDENT contractor. Moreover, a truly independent contractor must have their own company doing their own work separate from your own company. If you have people working for you, doing the kind of work your company does, not only should they likely be treated as an employee (ask for our articles on independent contractors) but you can’t control the competitive actions of a truly independent company.
You CAN control the actions of an employee if you have an agreement that is written, signed, and clear. And you should include confidentiality provisions if there are trade or other secrets to protect. If you are worried that an employee might leave and then take other employees with them, you should also include non-solicitation provisions as well.
A non-competition and confidentiality agreement should be simple and clear and tailored to your business. If possible, it should be signed at the beginning of employment. If not at that time, try to give the employee some new consideration (that means that something of value is given to the employee in exchange for their promise not to compete). Make sure that the agreement is reasonable in terms of scope and length. The shorter the length of time and the more narrow the geographic distance and type of work covered, the more likely it is that a court will uphold the agreement. Not that you ever want to have to test an agreement in court – the more straight forward and fair an agreement appears, the less likely an employee will hire an attorney to challenge it in court.
If you want the agreement to cover attorneys’ fees, that must be spelled out. That is true for what are called “liquidated damages” as well – damages that the parties agree will apply if the contract is violated. For example, there could be an agreement that the cost of the employee going to a competitor would be $20,000 (try to have some basis for that number). If the employee goes to a competitor, the court is likely to find that the employee should pay that amount to your company if there is a basis for it. For example, there was a case where doctors from one hospital went to a competitor in the same town. The court decided that it would not be appropriate to hold that the doctors couldn’t leave and see their patients (the decision was the patients’ to make) but it could order those same doctors to pay the agreed-to penalty for leaving their employer.
Easier to enforce than a non-compete (which means that the employee can’t work in their job after they leave your business) is an agreement not to solicit your clients or customers. That means that the employee cannot go after your customers/clients and try to contact them. Some agreements even limit a former employee’s ability to accept business, even if they didn’t try to contact the customers providing that business.
Whatever the agreement, it should be tailored to the company’s actual needs and should take into consideration whether the terms might discourage new talent from signing on as an employee. For example, an advertising business might use language such as this:
Employee shall not canvas, solicit, contact or call upon any present customers or clients or business connections or sources of advertising business of Employer, directly or indirectly, in any capacity . . . for the purpose of soliciting any advertising business, or advertising customers, nor render assistance in any way to any competitor of the Employer in order to interfere with or divert, solicit or service any advertising customers, clients or customers of Employer.
The type of business affects the types of confidential information that need protection, the manner in which clients or customers are contacted and their information retained, as well as the reasonableness of restrictions that an employer may want to impose in the future. How that document is drafted may also affect whether it can be enforced in the future as well. Finally, you will also want to dovetail any such agreement with policies on how client and company data are maintained and accessed on phones and computers at home, and the ability of the company to end that access, if needed. Knowing about where and how data is stored is important to maintaining its security so being informed will assist a number of aspects of your company, not just its use by employees. We will be addressing data security in the future here too!
This article is not legal advice but should be considered as general guidance in the area of employment and corporate law. Rebecca S. Webber, Bryan M. Dench, Amy Dieterich , James F. Pross and Jordan Payne Hay, are employment and labor law attorneys; others at the firm handle business and other matters. You can contact us at 207.784.3200. Skelton Taintor & Abbott is a full service law firm providing legal services to individuals, companies, and municipalities throughout Maine. It has been in operation since its founding in 1853.