Is This The End Of The Non-Compete Clause?

 

In today’s episode, I unfold the reality of the FTC’s proposal to nationally disband the non-compete clause. As it stands today, non-compete clauses are notoriously difficult to uphold so this proposal is arguably inconsequential. There are much more reliable ways to protect your business. Regardless if the proposal passes or not, I am teaching you alternative ways to safeguard your company from former staff seeking to recruit your employees or solicit your customers. 

A non-solicitation provision is more effective and enforceable in the eyes of the courts. You cannot prevent a person from working but you can protect confidential information from being appropriated. This episode will help you strategize your onboarding agreements and prevent future litigation with former employees working in the same industry.

Key Takeaways:

[0:30] The FTC just entered a new proposal to nationally ban non-compete clauses

[1:00] The book is now available for preorder on Barnes and Noble!

[2:00] Non-compete clauses are currently very difficult to enforce in most states

[3:00] Most states limit enforcement geographically and within a reasonable timeframe

[4:25] Protecting your business with a confidentiality agreement or an NDA

[6:50] Understanding the difference between confidential, public and industry knowledge

[7:45] Non-solicitation agreements protect your business from losing customers and employees

 

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Disclaimer: 

The Legalpreneur Podcast is advertising/marketing material. It is not legal advice. Please consult with your attorney on these topics. Copyright Legalpreneur Inc 2022

 

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Legalprenuer transcript:

Andrea Sager  00:03

Welcome to the Legalprenuer podcast. I’m your host Andrea Sager founder and CEO of Legalprenuer Inc. As a serial entrepreneur and someone that works exclusively with small business owners legally protecting their business. I’m dedicated to covering common legal issues faced by business owners, providing you with the business knowledge you need to catapult your business’s growth and showing you just how some of the world’s most elite entrepreneurs have handled these legal and business issues themselves. In true attorney fashion, the information in this episode is not legal advice. This is for informational purposes only and you should always consult with your attorney before implementing any of the information in the show. Hello there welcome back.

 

Andrea Sager  00:47

Today’s episode is about non compete clauses. I’m not sure if you saw the news, but the FTC just entered a new proposal to ban non compete clauses across the nation is that surprising, I think non compete clauses they have a time and a place. But that’s what today’s episode is going to be about how to get around a non compete clause. If this does get enacted or even right now, before we get into it, I am so excited because Legalprenuer, the business owners guide to legally protecting your business the book that’s coming out, it is officially on Barnes Noble and Amazon. If you have not already purchased it, if you have not pre ordered it, please, I would be so honored. If you would go and preorder it right now. I would be so forever grateful. I would just want this book in as many hands as possible. It is legitimately a necessity for any business owner, any side, Hustler, any freelancer, any creator, any body that has a business, whether they know they have a business or not. So go preorder the book, I would be forever grateful. Okay, non compete clauses. So the FTC, the Federal Trade Commission is trying to ban non compete clauses across the country. This was a shock to a lot of people. I mean, what I saw on social media, but quite frankly, it’s not that enforceable in very many states. So if you try to have an employee sign a non compete agreement in California, no, not not enforceable in the slightest. California has completely banned non compete agreements. So this really isn’t even an issue for California, a lot of states do have restrictions on non compete. So you can’t have a blanket non compete. And the reason is because the courts don’t want people to not be able to make a living, which makes sense. And so there are ways to get around it as an employer to make sure you are having new employees signed something that is protecting you. And I’ll go over that in a second. But I just want to talk a little bit more about non compete agreements. So for the non compete agreement, when you actually have someone sign it, they are typically only enforceable very minimally, very minimally are they enforceable, and every state is different. But most states will say, it has to be within a certain geographical region for a certain amount of time in a certain type of business. So, and I know European wax center, I know this for a fact, because I’ve had a couple of estheticians come to me trying to figure out how to get out of it. So what they and they used to not have it be a district, but I know they are very strict. I think they have a 10 mile radius now on theirs. But a lot of states will say hey, it can’t be more than a 50 mile or a 25 mile radius for the non compete. And it can’t be for more than a year or two years. So those are the types of restrictions that a lot of states currently have. And some states, I don’t remember what state this is, I feel like it might be Washington state. But there can’t be a non compete. Unless the employee was making 100,000 or 150,000 a year there was an income limit there. So a lot of states are already enforcing restrictions around non competes. So don’t think you’re going to be able to have a blanket non compete agreement. Now, if you’re an employer, and you want to make sure you’re still protected, we can make that happen. And the reason is because I mean, even as a human being, you don’t want to stop somebody else from going and being able to make a living. But what you do want to protect yourself against is having somebody work for you, teaching them all this confidential stuff, and then then leaving to work for someone else or start their own business and they try to take your customers. So there’s two things we can do here to make sure that those things don’t happen. Number one, your confidentiality agreement, also known as a nondisclosure. Those are two documents that are absolutely enforceable. There might be hard to enforce. And you have to recognize the risk or not necessarily the risk but just know that if they breach the At confidentiality or the nondisclosure agreement, you’re most likely not going to get money from them. Because as an employee, they probably don’t have much money to get however, you can get a gag order, which would stop them from disclosing the information. And then to what might also happen is, if they’re going to work for a new employer, or if they’re going to start their own business, the court may prevent them from using that confidential information with that new employer, or in their new business. What I have seen, I personally have seen this in real life, I was not representing the company, it was like a family member, somebody who was under a non compete and confidentiality agreement. And they went and worked for a new employer trying to get around it. And the court actually made the employer pay the damages the new employer pay the damages to the old employer.

 

Andrea Sager  05:56

So that’s also a remedy that can happen. So when you go to enforce these agreements, don’t think that you’re going to get this huge sum of money, the purpose is to get them to stop doing what they were doing. So that’s confidentiality, NDA non disclosure. Now, what’s important about the actual confidentiality agreement, it has to actually be confidential information, what you think is confidential may not actually be confidential. So before you want to go and sue someone for breaching a confidentiality agreement, you have to make sure it’s not already public knowledge, you have to make sure a third party doesn’t already know. You have to make sure that it’s not industry knowledge, just because the greater public doesn’t know doesn’t mean it’s not already industry knowledge. If it’s industry knowledge, it’s not confidential information. So when you have clients signed these, and maybe they you think they breached it? Well, before pursuing them for breaching that agreement, you have to make sure it was actual confidential information. So just some side notes there. Okay. Now, non solicitation agreements, this is really the big one that really saves employers. And this is really what a lot of employers are trying to not have employees do by making them sign a non compete agreement. So a non solicitation agreement or provision can cover two things. Number one, it can stop the employee from soliciting or taking customers, and it can also stop the employee from soliciting or taking other employees, those are enforceable by all means they are enforceable. Now, some states will make it not necessarily tricky, but one thing that you have to be careful with is how the non solicitation agreement is worded. Because if it’s worded, hey, you cannot solicit our customers or our employees. Got it? But what if the customer then solicits that employee at their new job? What if the employee solicits the new employee at the new job? Can that happen? Can the former employee So work with that customer, normally, it can be in the agreement that they even if the customer solicits the employee, it’s not the employee soliciting the customer to take them, even if it’s in the agreement, it’s gonna be hard to enforce that. But it can be enforceable, some states limit that some states will say, hey, if the customer reaches out to the former employee, that’s okay. But if they sign a non solicitation agreement, the employee cannot go after that customer or the employee and take them with them. Every state is different, every state has different ways to enforce it. But just know the nonsolicitation provision or agreement, that is what is preventing the employees from taking customers or other employees to the new place of business, whether they’re starting their own business, or they are going to work for a new employer, the non solicitation is protecting against that. So just keep in mind, I tell clients all the time, they they’ll come to me that, hey, I want to draft this non compete agreement. And I’m like, hey, this probably isn’t enforceable. So let’s try to get around it this way. Let’s, let’s do confidentiality. Let’s do non solicitations. Let’s protect against the specific things that can be enforced. Because if you have them sign a blanket non compete, and you have to enforce it, you have to go to court for it. Quite frankly, the judge is just going to probably throw it out. But if you’re very strict on it, don’t force the parts that can’t be enforced. So make sure you’re very specific with these agreements. And keep in mind the whole purpose of these is to not limit somebody’s ability to work, not limit somebody’s ability to go and make money. That’s the whole purpose. But at the same time, the business owner needs to be protected as well. So keep that in mind. Happy drafting how Happy hiring?

 

Andrea Sager  10:02

Let us know if you need any help. Of course, let us know if you have any questions and let us know on Instagram or tick tock what you liked most about this episode. We’ll see you next time. Here at Legalprenuer, we’re committed to providing a supportive legal community. For all business owners. I know how scary the legal stuff can be. If you found this information helpful, I would be so grateful if you could share it with a fellow business owner. And quite frankly, it doesn’t cost anything to rate review or subscribe to the show. Your support helps me reach more listeners, which allows me to support more business owners in their entrepreneurial journey. Have any questions or comments about the show? Feel free to drop me a line on Instagram. I promise I read all of the messages and comments. And if you want to be a guest on the show or know someone that would make a great guest simply fill out our application form and a team member will reach out if we think it’s a good fit. I’ll see you in the next episode.

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