How To Use Non-Competition Agreements

So here is a business owner’s nightmare. 

The company hires and trains an employee to work in a woman’s boutique. The clients LOVE the employee, but she quits unexpectedly. And then one week later, the owner drives by the former employee’s new shop: one block from her store and watches her clients go there instead of entering her store. 

So, how do you protect your business from this heartache? 

You may need a non-competition agreement. 

An employee owes the employer a duty of loyalty. But the duty ends when she quits or is fired. And without a non-competition agreement in place, without few exceptions your former employee may take your clients, and even open a competing business a block away after she quits. 

So, when is a non-competition agreement valid? 

When allowed, these restrictions must fit your business: Permissible restrictions are based on prohibited activities and the geographic and time limits. For a boutique owner probably can’t prevent its former employee from working in the entire fashion industry, but only a woman’s boutique and a 5 year restriction would likely be unenforceable since the client acquisition cycle isn’t that long. If the store’s clients come from a 10-mile radius a state-wide restriction is unlikely to be enforceable, most states disfavor these agreements. Which means if your restrictions are too broad you may end up with no protection at all. 

So, for non-competition prevision is unlikely to be worth the papers written on, because those restrictions aren’t narrowly tailored to meet your business’ needs. 

Non-competition agreements can be a great tool to protect your business but remember, you wat a custom fit and not an off the rack agreement.