If you run a business with employees, you should consider whether to protect your business by entering noncompete agreements with your employees. It is a common misconception that noncompete agreements are not enforceable in Minnesota, but they are so long as they are properly drafted. While there are many things to consider before deciding to use noncompete agreements in your business, here are five things to consider in making your decision.
1. Do you have important information that you should protect?
What does your employee know? Most businesses have information that is valuable because it is secret, or at least not readily known by the public. This can include technical know-how and methods, pricing, customer lists, supplier lists, market plans, etc. If you have information like this that would hurt your business if it was publicly disclosed or just disclosed to your competitors, you should strongly consider utilizing noncompete agreements to protect your trade secrets and proprietary information. For example, if you have established relationships with suppliers that let you provide your products and services at a better price than your competitors, it is best to keep that information confidential and only disclose it to employees who are bound by an agreement to keep that information secret.
2. Is it worth the cost?
Noncompete agreements are specialized contracts that are strictly enforced by the courts. There are many factors that courts consider when determining whether a noncompete agreement is enforceable. Therefore, it is never advisable to simply search the internet for a template non-compete and use that with your employees. Instead, your business should hire a business attorney to prepare your non-compete agreements and then to assist you with implementing the agreements with your employees. The costs for hiring an attorney to do this should not be extremely expensive, but you should find the estimated costs and then determine whether it is worth it for your business.
3. Are you serious about enforcing the noncompete agreements?
If after considering the initial costs for preparing and implementing your non-compete agreements, you decide to move forward you should also consider whether your company would be willing to bring a lawsuit to enforce the agreements. Litigation to enforce non-compete agreements can be very expensive. And while merely the threat of litigation can have a positive effect on protecting your business, if you are not willing to enforce the agreements it may not be worth the investment to implement them in the first place. You should discuss the costs of enforcement with your business lawyer at the same time that you discuss the costs of drafting and implementing your non-compete agreements.
4. Would several employees leaving your company at once hurt your business?
Some companies run the risk of an employee quitting in order to start a similar business of their own. When this gets really messy is if the employee wants to take their co-workers with them to do similar work to work they’re doing for you. Would something like this have a negative impact on your business’s ability to continue its operations? It may be possible to prevent an event like this from occurring by using a non-compete agreement.
5. Could it interfere with your ability to attract the best employees?
In some highly competitive fields, asking a prospective employee to sign a noncompete agreement could make the job offer less attractive. Before you invest time and money implementing non-competes with your employees, it is important to have a good understanding of your labor market and whether requiring non-competes would make it hard to attract the most talented employees in your field.
Bonus: Do you have plans to sell your business?
If you have any plans to sell your business at any time, you should strongly consider using non-compete agreements in your business. A prospective buyer will likely value your company higher if your employees (and the trade secrets they have) are not going to leave for a competitor once the sale is final.
If after reading this, you believe that your business should be using non-compete agreements to protect your confidential business information please contact the Neve Webb team today. We would be thrilled to assist you and your business in these matters.
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