March 19, 2015

non-compete and non-solicitation agreement being made Non-compete and Non-solicitation Agreements are now largely standard in corporate America, but have not yet fully migrated to the smaller employer or professional work environment. These provisions can be incorporated into an Employment Agreement or can be drafted as a stand-alone agreement and provide excellent protection against a departing employee raiding your business’s assets. Essentially, their purpose is to prevent a departing employee or partner from competing against your business or soliciting your company’s customers, clients or patients. Whichever method is used, there are a number of important provisions that must be considered for inclusion.

Return of Documents: The departing employee should be contractually required to return company records, documents, handbooks, technical manuals or other information in whatever form to the company at the time of their separation or within 72 hours of demand. This requirement should encompass copies and derivations of all such documents and records.

Consent to Injunctive Relief: A clause should be included to the effect that any harm done by the departing employee will be difficult to quantify or measure and therefore could be irreparable. To avoid such irreparable harm, the departing employee should consent in advance to injunctive relief. Such clauses may not always be enforceable, but without one, injunctive relief is improbable. And you need this to stop the employee in their tracks, instead of letting the damage happen and waiting to collect after a long drawn-out legal battle.

Limit Scope to Restraint That is Necessary to Protect Interest of Employer: Non-Compete/Non-Solicitation Agreements are not favored by the courts and will always be construed narrowly. An overly broad clause may be fatal and the court could declare the entire agreement void. Many courts, however, will “blue pencil” or strike the offending language or even re-write the restriction to make it compliant while leaving the remainder of the agreement valid. Nevertheless, these agreements are generally enforceable if properly drafted so that they are no more burdensome than necessary to protect a legitimate business interest of the employer. Courts generally agree that such interests include goodwill, unique training, confidential information, client lists and proprietary procedures. The duration, scope and geographic restraint imposed by the Employer must be tailored to the particular position and circumstance of the employee or class of employees and thus a one size fits all document will not necessarily withstand scrutiny.

Establish Adequate Consideration: Like all contracts, non-competition and non-solicitation agreements must have a bargained for exchange of promises to be enforceable. Agreements executed before the employee commences work generally will be supported by adequate consideration because the employee’s agreement is in exchange for the offer of employment. If you wait until after the employee has begun working, continued employment is not always enough. To be safe, get the Non-compete/Non-Solicitation Agreement signed at the time of hire.

Provide for Attorney’s Fees: The agreement should include a clause providing that the employer will be reimbursed for reasonable attorney’s fees and costs in the event litigation is necessitated to enforce the covenants. Some jurisdictions may “blue pencil” or re-write this provision to provide that the prevailing party is entitled to recover attorney’s fees from the other party.

Provide for Assignment: Make sure your agreement will be enforceable by subsequent owners of the business. In the event the employer sells her practice or business through an asset sale, most courts will not enforce the agreement unless it includes a clause whereby the employee consents to the assignment. Thus, it is important to define the “employer” to include the practice, firm, company and its successors and assigns and set forth specifically that the agreement may be assigned to an affiliated group or successor in interest without notifying the employee. Also important is a provision automatically extending the term of the covenant for any time during which it was being violated. This will protect the employer if he does not discover a violation until after the employee has terminated employment.

If your practice or business has not used Employment Agreements and/or Non-Compete/Non-Solicitation Agreements, you should seriously consider making this a requirement of continued employment. However, it would be wise not to use an off-the-shelf document as these agreements need to be tailored to the jurisdiction and to the circumstances of the employment. In fact, several states prohibit non-compete agreements, but do allow non-solicitation. I highly recommend that you seek help from a qualified professional or human resource firm.

CEDR Solutions provides customized non-solicitation agreements for hygienists, massage therapists, associate doctors, and practice managers. Contact CEDR to learn more. Call 866-414-6056 or email us at info@cedrsolutions.com.

Friendly Disclaimer: This information is general in nature and is not intended to provide legal advice or replace individual guidance about a specific issue with an attorney or HR expert. The information on this page is general human resources guidance that is believed to be current as of the date of publication. Note that CEDR is not a law firm, and as the law is always changing, you should consult with a qualified attorney or HR expert who is familiar with all of the facts of your situation before making a decision about any human resources or employment law matter.