Newsletter: August 2006
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In today's highly competitive environment for top talent, firms face a major setback when a key employee jumps to a competitor. So, it's wise for them to protect themselves with a reasonable non-compete clause in a binding employment contract. Non-competes should not be written too broadly or made excessively restrictive, however, because they can backfire and scare recruits off. I've had some clients actually raise the non-compete issue with recruits during early interviews. Not surprisingly, some recruits are taken aback when this happens, and want to know the particulars of the firm's non-compete clause. Sometimes the recruiting process comes to an abrupt halt at this stage if the recruit feels that the clause is unreasonable. Indeed, some non-competes are written so broadly that they seemingly prevent the employee from working for any other A/E firm for the period of the agreement, which could be two years or more in length. The effect of such a restriction could prevent the employee from working at all in his or her profession for at least two years. How many A/E professionals could afford to do that? It's no wonder that recruits balk at such clauses. Legal considerations It's also prudent to keep in mind that non-competes that are overly restrictive may be deemed unreasonable and unenforceable by a court. Clauses that totally prevent employees from using any of their skills for gainful employment are likely to fall into the too-restrictive category. For instance, prohibiting an engineer from working for "any other US-based engineering firm for a period of two years" would seem unreasonable to most people. Non-competes should be written so that they provide adequate protection for the employer, but also seem reasonable to employees. So, what types of non-competes are reasonable? In general, certain limits placed on non-compete restrictions are beneficial from both recruiting and legal perspectives. Most non-competes have time and geographical limitations. For example, the verbiage might require a departing employee to not work for a competitor that operates within a 100-mile radius of the firm for a period of at least two years. For local and regional firms, a geographical limitation on the non-compete would effectively prevent a departing employee from working immediately for a competitor, but still allow him or her to earn a living in another area. Laws on non-compete clauses vary from state to state, however, so make sure a lawyer reviews yours before putting it into practice. All non-competes should be put in writing in clear language, and should be clearly understood by the recruit/employee. It's best to have a common, firm-wide policy on non-compete clauses that have been reviewed by your legal advisors. There may be variations if you have offices in multiple states in order to account for different state laws. Critical non-compete provisions A key part of any non-compete in the A/E industry would prevent the departing employee from soliciting your firm's clients for a designated period. Another common, reasonable provision would hold that an employee could not recruit members of his or her team to work for his or her new firm. In fact, these types of provisions are probably more essential in protecting the firm's interests than those that restrict for whom the departing employee can work. Losing one productive employee is a setback that most firms can overcome, but if that employee takes clients and other employees with him, the situation can become dire. Non-competes and recruiting Non-competes also come into play when you are considering a new recruit. Find out if the recruit is subject to a non-compete with his current or previous employer, and what implications it would have if you hire that person. In some cases, you might have to wait a few months for a non-compete to expire before the recruit can officially begin work. You have a right to protect your firm from former employees poaching your clients and employees, and to safeguard sensitive, proprietary information. But make sure that your non-compete clauses are not so restrictive that they harm your recruiting efforts. Also, in the recruiting process, wait until you've piqued the recruit's interest before discussing your non-compete rules. What do you think? Let us know. Justin Roy is Director of Midwest Operations for SullivanKreiss. He can be reached at jroy@sullivankreiss.com.
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SullivanKreiss opens Chicago office >>
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edited by Peter Fabris pfabris@peterfabris.com, http://www.peterfabris.com
formatted and sent by Bluewater Internet bob@bluewaterinternet.com, http://www.bluewaterinternet.com
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