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Creepy Non-Compete Clauses: Don’t Be Cheesy!

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Creepy Non-Compete Clauses: Don’t Be Cheesy!

The current producer of the Get a Grip on Lighting podcasts, like many folks in the creative-industrial complex, used to pay the bills between contracts as a bartender. One of these gigs was for a chain of fondue restaurants that shall remain nameless. After his local franchise closed, he was not allowed to work at any location that offered fondue of any sort, for five years. To be clear, our producer was not in management, he was not privy to any trade secrets beyond how to get strawberry slices to float in formation in a martini glass. There’s a similar case with a chain of sandwich shops that until 2016 forbade its former minimum wage employees from seeking work anyplace where bread and toppings were offered together for twelve months.

Sounds ridiculous, doesn’t it?

How about when you open up your voicemail to find a message from a lawyer calling about your new salesperson, who just moved from a half dozen counties over, threatening them and you over a breach of contract because of a non-competition clause.

Surely, it’s more than fair for a business owner to demand loyalty. The owner assumes most of the risk of entrepreneurship; it’s the owner that pays for training, develops tools, and creates the strategies that keep their employees working. And when all of the owner’s effort gets cast aside, they should have every right to punish those who leave by eliminating their right to ply their trade and provide for a family. You own them because you showed them the difference between T8 and T12, right? Or taught them to fill out some stupid incentive application for a local utility company.

If you’re in a leadership role with that attitude, I bet you stalk your high school ex’s Instagram feed too.

Get a Grip, buddy.

And this is legal in how many states? 47? Land of the free, unless you want career mobility. Land of the brave, unless you’re worried about some entry level employee taking you out. If your staff is that much of a threat that they can’t leave the company without causing damage, they should be running things instead of you.

Because that’s where your non-compete clause should rest, with the employees in the C-Suite earning a salary in excess of $150,000 per year, with stock options and all the best perks. Think about it, that non-compete is as much for them as it is for you, a reminder that they are so valuable to you you’d rather ruin them for years than see them leave. Plus, sophisticated, experienced employees often use it as leverage in negotiations. Because people that earn that kind of money aren’t desperate, buried in college debt and actually read their employment contracts. They might ask for more money to sign a non-compete and outline the specific terms and conditions of severance should things go south. They know how it works and what they are signing up for.

But your rank and file can be left to their own devices, especially in a business as regionalized as lighting can be – those that leave your employ are likely to leave you geographically as well.  But even then, you don’t own their careers. You trade cash for time, skill and effort; not their future.

But what of all the trade secrets and proprietary tools they’ve had access to with your business? Non-disclosure is acceptable; returning to the cheesebag story of The Producer and the Fondue, he still can’t say what kind of wine is in the recipe for the Alpine Classic Fondue Paradise (hint: it comes in the biggest box you can find). Non-disclosure may also be savvy depending on how often you create new and unique management solutions; and unlike non-competition clauses, they don’t make you a bully.

And what if you fire them? A completely justified dismissal with a non-compete is absurd.  Apparently, the person is not good enough to sell light bulbs for you or anyone else in the industry. As if the termination of employment is always a one-sided affair where the employee screwed up and should be banned from the industry.

As business owners we have a responsibility to build the kind of environment people want to stay in. Not everyone is going to be a fit, but honest self-appraisal is important. It is not always the employee’s fault that they didn’t succeed in your environment. Perform exit interviews and ask yourself and your team what you can do better outside of paying people more.  Maybe people are leaving for reasons other than what lands in their account on the 1st and 15th of each month.

Sure, there’s the question of customers. It is true that some salespeople try to keep their accounts as they move between employers; they may even promise prospective employers fat portfolios. This is morally wrong on the part of the salesperson and the eventual employer. But if they leave, you’ve just gotten rid of an unethical employee, so good-riddance. They go cheat someone else, somewhere else. And then your competitor just outed themselves as a scoundrel – willing to play dirty to secure clients. Good information to know. And finally, let snakes den together, well away from you.

If it is the staff keeping customers around, and staff alone – not the products, not pricing, not the actual business of your business, then you need to re-evaluate your priorities. You had to compete for those customers in the first place, and you have to compete to keep your customers with every single transaction no matter who is acting as the face of your company.

Finally, and most disgustingly creepy, is the fact many employees get into this indentured servitude without really knowing what they are signing. If you are sitting there thinking, “I got you now, sucka” on some recent college grad, 150K in debt and just starting out, you should really hit the confessional because you are likely to burn in hell.

Signing a contract with a new employee, the actual act of forging an agreement between a person and a corporation, is an unqualified good. As the employer, the senior party to the execution, you have a fiduciary duty to evoke trust, honor, understanding, and responsibility; to press hands together in good faith and with integrity. Instead, the treacherous non-compete is slipped in on the sly; the grinning handshake with the knife behind the back. Embedding the filthy pact with enmity and revenge from its inception. Really?

Now that’s cheesy.

 

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Michael Colligan

Discussion (3 comments)

    Steve Bellwoar July 29, 2019 / 2:04 pm

    How about when you have an open and honest conversation with a prospect about the reasons you have the non-compete in there, prior to hire. “We plan to invest six figures into training you on our industry, our pricing strategies, our customer list, our strategic vision, on many things. The minute we finish this training you are automatically worth a much higher salary to our competitors who did not have to incur this cost, and who are looking for a warm introduction to our customers. That’s why we have this clause in your contract that prevents you from joining a direct competitor for a year after you quit. The year gives us time to introduce new salespeople into the account. Also understand if you do move immediately to a direct competitor like this that we will take legal action and you agree to be liable for all of the training costs and the profits your new company achieves from your taking our customers (not your customers) over there. Before you accept this position please think hard about this and don’t sign it if you don’t agree. Remember, it’s just one year to a direct competitor and once trained by us you can certainly work in the industry if you’d like, just not in direct competition to us. This is your choice, please discuss it with your family and let us know. No hard feelings either way.”

    Frank Hurtte July 29, 2019 / 3:10 pm

    Cheesy, well maybe. However, I do believe non-competes have a place when applied fairly. Here are a few thoughts:
    1) When a distributor hires a new guy out of school, the first year – perhaps two are mostly done with a negative profit contribution. Think training, exposure to the industry and a number of other things. Having that person pulled away just when they reach the point of profit generation by a competitor offering a couple thousand more dollars discourages investment in employees.
    2) A distributor who opens a new territory with an employee who has no customer knowledge only again to have them pulled away based on a small increase in pay is not good for the distributor.
    What is a fair non-compete?
    1) An employee who leaves can call on companies outside of their existing customer base. Examples, accounts a couple of counties away or a salesperson forbidden to deal with existing accounts for a period of time.
    2) An employee who is terminated is exempt from the non-compete.
    3) An employee whose compensation drops more than 20 percent over the course of a two year period.
    4) Change in ownership of the distributor for which they work.

    Other things are covered by “trade secret” rules:
    1) Customer lists including contacts at the customer.
    2) Pricing practices.
    3) Supplier based rebates and incentives.
    4) Go to market strategies.

    Derrick E Hoskins July 29, 2019 / 7:18 pm

    This is one of the most ignorant articles I have read on TED. NC/ND/NS all have a place when you invest thousands of dollars into the largest asset your business has… its employees. The ability for companies to cherry pick your best employees without penalty is not only smart, it’s mandatory nowadays. All the items you highlight in regards to a business’ worth don’t exist without the employees. Yes the NC/ND/NS should be fair and balanced on both sides, but the business has the greatest risk for lost. The business I speak of that you are protecting is the rest of the ethical and loyal employees that are left. Contracts are written for worse case scenarios… not when situations and employees actually have ethics and integrity. I have dealt with both types of departures, neither are great but when a good employee leaves under good terms you work to find them another job. Being an ‘expert’ in lighting should give you some intelligence that parts of the electrical business ethics don’t exactly have a firm place in reality. You might know something about lighting but your business acumen and intelligence on protecting communal property in a business leaves a lot to be desired. Allowing an article like this is fairly poor judgement on TED’s editors. This is an assault on every company that employees NC/ND/NS agreements with their employees.

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