Non-Competes: The Employer Perspective
While attracting great packaging executives is important, so is protecting confidential data from the competition. Are non-competes the solution you need?
In part one of this series, we explored how non-competes can impact packaging executives in their career choices. In the second half of our conversation, we flip perspectives and discuss what these same agreements mean to employers.
Naturally, we chose to bring our resident expert back to finish the story. Dallas attorney Bryan Collins - a twenty-year veteran in the fields of labor and employment law.
We begin with the most obvious (and commonly asked) question.
How Do Non-Competes Benefit The Employer?
In a number of ways. But, in basic terms, non-competes protect sensitive information.
Mr. Collins explains that anytime a competitor hires one of your key employees they “will likely have immediate access to information regarding your top clients, marketing plans, finances, personnel, trade secrets, and methods of doing business.”
Not a pretty picture.
It’s worth noting that employees have a common-law duty to safeguard proprietary information acquired from previous employers. However, Bryan points out that implementing non-competes “significantly reduces the likelihood that competitors will learn and benefit from such information.”
What Should Employers Be Concerned About Regarding Non-Competes?
Choosing whether or not to institute non-competes is often a difficult decision. Each packaging firm should analyze their unique situation and evaluate if this option makes sense.
As food for thought, Mr. Collins offers up a few important points to consider:
- Need - Non-competes are typically necessary only for employees who can “legitimately harm the company if operating in a competitive role” says Bryan.
While executive suite positions are a “no-brainer”, the same restrictions would likely be overkill for production or service-based employees.
- Design - While first inclination is to try and include everything in a non-compete, Mr. Collins advises organizations to do the opposite. Instead, he says, you need to be specific.
The Dallas attorney explains that being “overbroad” can lead to problems down the road. Like having to pay legal fees for employees or sometimes limiting the amount of recoverable damages - even when the non-compete is still enforced.
- Cost - It goes without saying, but implementing non-completes can be expensive in terms of compliance and legal enforcement.
- Impact - Lastly, Bryan advises considering the long-term implications of enacting non-competes.
In his own words, “the use of non-competes may limit your ability to hire employees of your competitors who have non-compete agreements of their own.”
In other words, don’t expect to have your cake and eat it too.
Does Hiring Someone With A Non-Compete Put Packaging Firms At Risk?
There’s risk involved with any major business decision - non-competes are no exception. That’s why it’s important to understand the details of any packaging executive non-competes before selecting a candidate.
When in doubt, consult with legal counsel about questionable non-compete agreements.
Mr. Collins explains that if a non-compete is enforced, the courts may bar the employee from working for your organization. In addition, former employers may be entitled to compensation for any profits lost from breached contracts.
Bryan goes on to say that - if handled incorrectly - organizations can be sued for “interfering with the non-compete contract between the former employer and employee.”
The new employer may also be required to pay attorney fees and court costs in defense of their new executive. Additionally, employers may be held responsible for any judgments levied against the employee should a claim be made.
That being said, you shouldn’t be afraid to pursue top talent. Just be smart about it and ensure you’re clear regarding everything that’s involved.
Is Consistency Important in Non-Compete Agreements?
This is a key element explains Collins. He says that in many states, organizations that knowingly allow former employers to work for competitors may put themselves at risk.
Especially when such employment clearly violates existing non-compete agreements.
Because courts may determine that employers have “waived their right to enforce such agreements in the future.”
In situations where exemptions are being considered, our resident expert advises seeking legal counsel. Bryan says that employment attorneys can “structure agreements to modify the non-compete in a way that limits the risk of future waiver.”
Thereby protecting the employer and keeping their agreement options intact.
Are There Any Ways to Get Around Non-Competes?
A great question, but one without a cut-and-dry answer. The employment attorney says the biggest common denominator is often a single element.
“Any argument to a judge that a non-compete is unenforceable (or must be narrowed) should address a number of issues that all center upon the question of fairness.”
Collins goes on to explain that the question boils down to several key elements:
- Did the employee have knowledge of (or access to) confidential information?
- Was the employee required to interact with customers or clients?
- Would working for a competitor legitimately jeopardize the former employer’s business interests?
- Did the employee take any confidential information with them?
- Were the restrictive covenants overbroad?
- How did the employer handle breaches of other non-compete agreements?
The underlying theme being that if non-competes are too restrictive - or are not enforced uniformly across the board - any stake to a claim could be forfeited.
Bryan concludes by saying that judges, like most people, are receptive to the idea that these kinds of employment contracts must be fair in order to be enforceable.
Although we’ve pointed out a few negatives here, non-competes are still a great option to include in your toolbox. Primarily, because they protect the sensitive information and clientele list that companies work so hard to build.
Without them, trade secrets and proprietary data would become meaningless.
However, it’s also important to be cognizant of how employees hired from competitors are managed and what you can expect from them. Trust but verify is an appropriate mindset to have.
After all, no one likes surprises. Especially when it comes to safeguarding your competitive advantage.
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Chase & Associates
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More About our Expert:
Bryan Collins, Board Certified Labor & Employment Law, Clouse Dunn, LLP
Bryan Collins is a second generation Texan, born in Dallas in 1958. After graduating from St. Mark’s School of Texas and Stanford University, he returned to Texas and graduated from the University of Texas School of Law in Austin where he was a member of the Texas Law Review. Mr. Collins was associated with and later a partner in Dallas with Jackson Walker LLP for over twenty years. Since 2006 he has been a partner with Clouse Dunn LLP, a Dallas firm that focuses upon representation of employees and employers in labor and employment law matters. Mr. Collins has been Board Certified in Labor & Employment Law by the Texas Board of Legal Specialization since 1997.