Hi, Lisa here. I wanted to take a minute or two to talk to you about noncompete agreements. It comes up a lot in my practice, it comes up a lot with business owners so I thought it would be useful information to share with you.
What is a non-compete agreement?
It is a tool to protect your business from an unfair competition by someone who has had access to your private, unique, or proprietary information that’s vital to the operation of your business.
Who typically signs a non-compete agreement?
Commonly it’s going to be your employees, partner of the business, a seller of the business, or a buyer of the business who will have the access to the information of the business to make the decision whether or not to buy the business.
Are non-competes enforceable?
Well, that depends, (very lawyerly on the answer there). But the general rule of thumb for enforceable non-compete agreement is that it needs to be limited and both time and geographic scope only to the greatest extent necessary while still protecting the businesses interests. What we really don’t want to happen is that we’re taking productive members out of the workforce just in the interest of preserving a single business. Because of that, state laws are trending now against non-competes.
Laws in various states for non-compete agreement
States like California, North Dakota, District of Columbia, Oklahoma all consider non competes to be either entirely or largely unenforceable as they’re being seen as being against public policy. Other states such as: Wyoming, Maryland, New Hampshire, Rhode Island and Washington state have banned non-competes for a specific group of people – specifically low wage workers. Oregon, Nevada and Illinois have also passed legislation that is curtailing noncompete agreements.
In Massachusetts, specifically, there is a provision in the law addressing non-competes referred to as the “garden leave” provision. For non-compete agreement with an employee to be enforceable it has to state that the employee will be compensated for the period during which they cannot compete. Typically, it will be their salary, or there has to be some other consideration of value, but that last bit has not been clearly defined by the law. But it has also not been tested in the court. So, no one really knows what that means and what you would need to make it an enforceable agreement.
Protecting your business
How do you protect your business in light of the difficulties that you would face in implementing a non-compete agreement? You use solid non-disclosure and non-solicitation agreements in its place, those are enforceable everywhere. They protect the competitive business interests without keeping someone out of the workforce by preventing the sharing of that confidential information or using it for competitive advantage and also preventing the direct solicitation of employees, vendors and customers. So, to ensure that your business is protected, you need to work with a local council who is aware of the different non-compete law or laws that would apply in your situation and draft the appropriate agreements for you.
So hopefully this is a little helpful about non-competes, why they’re so confusing and complicated. And you can work with a council to find a way to protect your interests the right way. Visit our products page to find the right agreements for your coaching business.