Non-Solicitation, Non-Competition, and Non-Disclosure Clauses

You’ve worked hard – very hard – to build a successful construction business.  You’ve developed an approach and management style that distinguish you from your competition.  You have a solid customer base and great sales.  And you have a number of key employees who have learned your system and who excel at customer service.  All good news, but do you also have the right agreements in place to protect these business assets when a key employee decides to leave you?

Unfortunately, business owners and employers can be easily drawn into a state of complacency, overestimating the loyalty of their employees while underestimating the aggressiveness of their competitors.  In an economic environment where every sale matters, and any advantage can make a difference, companies have little   compunction in raiding their competitors’ employees and customers.  So just like you’d never think of leaving your valuables where anyone could simply take them, you don’t want to overlook those business resources in which you have likely invested the most time and money – your trade secrets, your customers and your key employees.

You need to put in place non-solicitation, non-competition and non-disclosure agreements – all 3 may appear similar, but they actually accomplish quite different goals.

To keep your construction business intact, you must have non-solicitation, non-competition and non-disclosure agreements in place with your key employees.

A non-solicitation agreement prohibits an ex-employee from asking your customers as well as your employees to leave you. A non-competition covenant does exactly what it says – it is a promise by your employees that they won’t go out and compete with you. And a non-disclosure agreement keeps your confidential information private and secret.

While it is bad enough to have an ex-employee go over to a competing company, it is surely much worse to have him or her begin calling on your customers and your current employees, asking that they come over to the competition. Worse, you wouldn’t want that confidential and proprietary information, which you have developed for your business, made available to your competitors. Everything from customer preferences, sales figures, vendor arrangements to unique formulas, proprietary software, and specialized techniques acquired over years of trial and error – all belong to you and need to be protected.  The last thing you want to see is an ex-employee using the knowledge and experience gained at your expense. That’s why a non-disclosure agreement is also critical.

When drafting these agreements, keep in mind that the initial threshold requirement to their enforcement can sometimes be the most difficult – you’ll need to show that there is a legitimate business interest that needs to be protected.  Keeping proprietary and  confidential  information, trade  secrets or  customer lists  from getting  in  the  hands  of  a third  party is such a legitimate interest.  And even after establishing this requirement, you will still need to show that the restriction being imposed is not overly broad but is limited to those geographic areas related to your business. Any restriction should not be unnecessarily long – two years has become customary in many jurisdictions. Finally, the employee must receive some benefit for agreeing to these covenants.  To sum up, the restrictions you impose must be necessary to protect your interests, reasonable in time and scope, supported by consideration or benefit, and uniformly applied if they are to be enforceable.

Remember, each restrictive agreement is fact specific – one size does not fit all.  For example, some employers think they can have employees sign such agreements anytime – even after they’ve been working at the company for a while.   But without providing something of value in exchange, employers may end up with an agreement they can’t enforce.  Also attempting to restrict someone for too long or too far could result in a court finding that the agreements are just too broad and not enforceable.

Don’t fail to recognize how green the grass across the street may appear to your employees and how eager your competitors may be to recruit some of them.