Law News and Tips
Fred L. Vilbig © 2017
I once had a client whose business consisted of a list of licensed medical professionals. Hospitals and other medical facilities were in chronic need of these professional, but they were unable to hire enough of them. The professionals in question usually did not want to be full-time employees; rather, they just wanted to work part-time. My client identified healthcare facilities that needed these professionals and then let the professionals know of the opportunities.
This was actually a lot of work. The owner was constantly meeting with different facilities and working out the details and then recruiting professionals to fill the jobs. She wanted to get paid for her work. The healthcare facilities wanted to cut costs by getting around my client, so we had all the professionals sign agreements saying that they agreed not to take a job at one of these healthcare facilities. This kind of an agreement is often referred to as a “non-compete”.
Simply stated, a non-compete agreement prohibits a former employee from competing against a former employer. Courts don’t necessarily like this kind of thing. It’s kind of un-American to keep someone from working. However, courts realize that businesses have the right to reasonably protect real business interests. If a company invests in an employee by training him or her to do a job or provide them with the names of customers who have been discovered through hard work, courts will protect these kinds of business interests. However, a non-compete restriction is not unlimited.
These restrictions need to be reasonable as to time and distance. If a business’ legitimate market is only in Chesterfield, a court will not enforce a non-compete against a former employee setting up shop in Columbia, Missouri. And if a company’s customer list completely changes every two years, the court is not going to enforce a 10 year non-compete. Still, depending on the circumstances, non-competes can be an effective way to protect business interests.
A related but separate agreement is a non-solicitation agreement. You commonly see these in conjunction with non-competes. There are two aspects of a non-solicitation agreement: customers and employees. The former employer clearly wants to prevent a former employee from stealing his or her customers. However, in addition, employers also want to stop ex-employees from stealing other employees. A non-solicitation agreement helps with that. Courts appear to be more willing to enforce these kinds of provisions than non-competes.
Anyone in business will tell you that it is tough. It can take years to develop your product or service. And once you have your product, you need good employees to help your business grow and prosper. And finally, you need a customer base. All of these things take a long time and a lot of hard work to develop. Business owners need to protect them all. That’s where non-competes and non-solicitation agreements come in. Important things to have.
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