Law Office of David MacTavish, LLC

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Non–Compete Agreement

How Can I Stop Employees From Violating Our Non–Compete Agreement?

I own a small company and we own various trade secrets and copyrighted software code. One of my employees is leaving to take a job with a competitor. She signed a non–compete agreement when she was hired here, but what can I do to protect my company?

Interestingly, major companies like Coca Cola and Kentucky Fried Chicken have been able to protect their recipes from departing employees and thus competitors for generations, but unfortunately these companies have never revealed how they do this, at least to my knowledge. They likely depend upon a combination of strictly guarded secrets (see Trade Secrets) among a minimum of highly trusted employees and enforced non–compete agreements.

Most states won't let you completely prevent an employee from working in their chosen field, but most states will let you stop an employee from working for a competitor or supplying a competitor with what they learned while working for you, and most states will let you stop an employee from competing directly against you. Balanced against this, most states restrict employers from making non–compete agreements that run too long or that reach too far geographically. 

Many courts tend to view non–compete agreements with some suspicion because the agreements do, after, restrict trade in one form or another. It's therefore probably unwise to  write a non–compete agreement yourself or to download one from the Internet. Because each state has different rules regarding acceptable non–compete agreements, it's too easy to insert terms that will be found illegal by the courts. Instead, always consult an attorney regarding non–compete agreements.

Let's assume you consulted an attorney who drafted a non–compete agreement for you, but now an employee is quitting for employment with a competitor. What should you do–what can you do? First, sit down to have an exit interview with your employee, and go over the terms of your non–compete agreement that your employee signed. Calmly explain that while you understand the employee's new interests, the employee retains an ongoing obligation to abide by the agreement. Explain what the agreement means if the employee forces you to take action against the employee.

If your employee decides to work for your competition or become your competitor, it's probably time to seek legal help. A lawyer can write a cease and desist letter to your former employee, and a letter to your competitor explaining the situation of the non–compete agreement. Alerted to the existence of the agreement and that it might entangle them in possible litigation, your competitor might decide not to hire your employee or will hopefully make sure not to use the employee's knowledge of your business.

If this doesn't work, be prepared to file a lawsuit to protect your business interests. If your non–compete agreement was carefully drafted most judges view them favorably, and even if the agreement is overreaching the court may still rule in your favor but limit the agreement in some manner.

The best rules to follow if you are going to use a non–compete agreement with employees are don't overreach, keep the agreement current, have a resignation or firing exit interview with all employees and provide them with a copy of the non–compete agreement, have an attorney write your non–compete agreement and cease and desist letters, and be prepared to follow up by filing lawsuits when your non–compete agreements are breached. Otherwise, word will get around that your agreement is worthless.