Small business owners or managers in Washington State and around the country often face a dilemma. You informally hire a young, bright, appropriately aggressive individual for a position at or near the bottom of your organization. Over time, your good judgment pays dividends; the employee masters his or her job, takes on additional responsibilities, continues to flourish, and becomes one of the most valuable employees in your organization.
In fact, the employee now knows so much about your business that he or she could strike out on his or her own and be a worthy competitor. In light of all that you’ve taught the employee, you would like to be able to restrict the employee’s ability to compete against you in the future. What can you do?
A Non-Compete Agreement May Be Your Answer
Properly drafted and signed, a “non-compete” agreement – an agreement containing a valid “covenant not to compete” – may provide you and your business with some protection. A number of important factors, however, must always be kept in mind:
- For an existing employee, there must be additional “consideration” to support the promise not to compete in the future. Remember that all contracts require what the law refers to as “consideration.” That is to say, each side to the agreement must give up something and also receive something of value. The store sells you a loaf of bread; you hand over $2.39. Each party has received and given something. In the employment context, for an existing employee, continued employment in exchange for the non-compete agreement is not generally regarded as valid consideration. He or she had the job before the non-compete; he or she has it afterwards. What has the employer given up? Something new must be offered: Additional pay, additional benefits – something of value.
- For a new hire, the rules are not nearly so restrictive. If there is no prior employment relationship, a covenant not to compete may be included without any extra consideration.
- Under all circumstances, whether the non-compete is related to an existing employee or to a new hire, it must be reasonable. Business owners must always remember that involuntary servitude was abolished by the 13th Amendment to the U.S. Constitution. Non-compete clauses, therefore, cannot be drafted so as to effectively prevent an employee from working. Courts are suspicious of non-compete agreements when employees at the bottom of the employment totem pole sign them. Employers are allowed to protect their trade secrets and their competitive edge. Courts usually find, however, that trying to restrict the future employment of someone that you only pay $12 per hour is patently unfair and unenforceable. Your protests that you need to restrict even low-paid employees to have a stable work force will likely fall upon deaf ears.
Non-Compete Agreements, Like All Employment Agreements, Must be Carefully Drawn
Non-compete agreements, as is the case with any clause in any employment agreement, must clearly spell out the interests and relationships that the employer is attempting to protect. The validity of a non-compete clause is highly fact-dependent. What is reasonable in one employment situation may not be reasonable for another. The more the employee is paid, generally, the more latitude the employer has in the wording of the non-compete. Even then, however, the restriction must be reasonable. Chances are a do-it-yourself non-compete won’t pass muster with the courts.
Seek Out a Knowledgeable Business Attorney to Assist You With Your Non-Compete Agreement
Blado Kiger Bolan, P.S. has over 50 years of combined experience providing businesses with quality services throughout the Pacific Northwest. We routinely advise business on all sorts of legal issues related to business operation, including employee matters. Because of our firm’s extensive experience in business litigation, we are better equipped to help you avoid expensive litigation. For assistance with an employment agreement, or any other type of business issue, contact us on the web, or call either our Tacoma office at 253–272–2997, or our Puyallup office at 253–272–2997.