Non-compete agreements have been the subject of a lot of negative press, largely because they’re often used when there’s no legitimate business interest in doing so. They can also restrict people from getting needed employment in the same industry when doing so would cause no harm to their former employer.
In industries that require unique skills and involve valuable customer relationships, such as construction, they can be necessary. They just have to be crafted carefully to ensure that they’ll hold up in court, if challenged, and that they don’t place an undue burden on the employees who sign them once those employees have left the company.
What is required for a non-compete agreement to be enforceable?
For a non-compete agreement to be enforceable, an employer needs to be able to show that having an employee go to work for a competitor in the area could prove detrimental to their business. While construction businesses typically don’t have trade secrets a former employee could share, they may invest a great deal of time training people and helping them improve their skills and business acumen.
A non-compete agreement or clause typically needs to be part of an employee’s initial employment agreement – or at least a new agreement they sign as part of a promotion. An employer can’t just decide one day that an employee needs to sign one or lose their job.
An employee may become one of the draws for repeat and new customers. Having someone like that move to another area business or start their own could understandably harm their former employer.
What are reasonable restrictions?
Non-compete agreements must be reasonable in both time and scope. For example, you can’t prohibit someone from going to work in the construction industry anywhere in Tennessee for the next five years. You could, perhaps, prohibit them from working in the construction industry within the county for the next year.
It’s important to provide an employee being required to sign such an agreement with something of value – such as a severance package that would cover their income for a few months or longer.
Every industry – and every business – is highly unique. You need a non-compete agreement that will protect your business and be fair to your employees. You also, of course, need one that’s reasonable and enforceable. Having legal guidance as you draft a non-compete agreement is crucial.