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If you have not noticed, there is an important trend in sales and marketing that has little to do with demographics, consumer attitudes, or incentive trips. Court rulings on non-compete agreements worry employers in a lot of states these days. Long utilized by companies to protect hard-won business and retain prized employees, the agreements generally have gotten sympathetic treatment from courts over the years.
Increasingly, judges are looking at the non-compete agreements with more skepticism, finding that such contracts frequently go too far in restraining employees, especially salespeople. In some cases, they are modifying the terms to make them less restrictive. In others, they are simply tossing out the agreements. Whatever the decision, they are having to rule more often. The work force is more mobile these days, and non-compete clauses are getting contested more often.
Recently, a state appeals court in St. Louis upheld a non-compete pact against a salesperson who had access to a company's confidential customer lists and pricing data. The court ruled such information qualified as trade secrets that warranted protection. However, many judges come down hard on non-compete contracts they feel do little more than guard an employer's turf.
Judges also examine how long an employee is barred from competing. Years ago some agreements contained lifetime bans. Now, periods of six months to two years are common. An attorney in Richmond, Va., recalls a company that tried to ban a former salesperson who worked in Roanoke from competing anywhere in the state. A court-approved compromise barred him in Roanoke, but allowed him to work in another Virginia city.
A judge may also consider the motives. A well-known case involving a salesperson for a printer, who was hired by a competitor, was decided on the basis that since the industry was highly competitive, and movement from one company to another was common, the employer's main objective in going to court was to intimidate other salespeople not to leave.
Perhaps a company could make a case if a salesperson is selling complicated computer equipment, which takes a good deal of training, but not just hiring someone and putting him/her on the payroll and utilizing sales skills he/she could have gotten anywhere; that will not cut it.
What Is Fair Competition?
Courts generally ask three questions when determining the fairness of a non-compete agreement:
- Is the restraint imposed by the covenant reasonable in the sense that it is no greater than necessary to protect the employer's legitimate business interests?
- Is the restraint reasonable in the sense that it is not unduly harsh and oppressive in curtailing the employee's legitimate efforts to earn a livelihood?
- Is the restraint reasonable from a standpoint of strong public policy?
Overly prohibitive language could turn a non-compete agreement into a useless contract, and allow a former employee to solicit your customers. A covenant should not be any longer than necessary to protect legitimate business interests. Agreements have been known to vary from one year to 10 years, depending upon the case and the interest the employer is seeking to protect. This is one area where an attorney's advice is critical.
Always remember that nothing happens until somebody sells something. Good Hunting.
George can be e-mailed at georgemreinfeld@juno.com. His firm ProTrain is available for consulting and training assignments in sales and marketing.
author: By George Reinfeld