Construction

The Construction Industry Advisor

<< Return to contents

---

Keep departing workers in check with noncompete agreements

After investing significant time, money and effort into getting an employee up to speed, the last thing you want is for that worker to leave and join a competing construction company. After all, the worker carries with him or her knowledge of your business practices and proprietary information, which could be of great benefit to a competitor.

To protect your company, require your employees to sign noncompete agreements. These agreements restrict former employees from working for your competitors for a specified time, and may also prevent them from using or disclosing confidential information such as your pricing methods, financial data and customer lists.

Make the agreement enforceable

The legal complexities surrounding noncompete agreements require considerable care and creativity when drafting them. Your goal is for the agreement's provisions to stand up in a court of law. When drafting the agreement with your attorney, make it as reasonable and specific as possible, paying particular attention to these factors:

Time. The embargo on working for competitors shouldn't last forever. Noncompete agreements rarely last for more than two to three years. But what's considered a reasonable length of time in one state may be different in another. Note that several states have developed guidelines for appropriate noncompete periods.

A contractor that has offices and employees in multiple states can be subject to each of those states' employment laws. A noncompete agreement that is enforceable in one state may not be in another. If you operate in multiple states, work with an employment lawyer to draft your agreements.

Scope. Your agreement should define -- as specifically as possible -- what types of work former employees can't perform at other companies and which competitors they aren't allowed to work for. For example, a field supervisor may not be allowed to be a field supervisor or fill a similar supervisory role in a competing company.

Geography. Limit the geographic area in which the company does business. For example, you might specify that employees can't work within a 50-mile radius of your firm after leaving. There has to be a reason you can defend in court for the geographic limitation to be enforceable.

Don't stretch the limits

Although your agreement should be as specific as possible, noncompetes that severely restrict an individual's choices for employment and ways of earning a living may be declared unenforceable in court.

The Wisconsin Court of Appeals, for example, ruled in 2003 that an insurance agent's noncompete agreement imposed unreasonable restrictions, because it prohibited him from working as an insurance agent, solicitor, representative or broker or in any way being connected with the insurance business as a representative or employee of a competing company or its affiliates for three years.

Cover every employee

In an age when competitive information is critical to a contractor's success, noncompete agreements can help you protect your business's interests when employees jump ship. Require new hires to sign a noncompete as a condition of employment. You can also require current employees to sign a noncompete. Whether it's legal for you to take adverse action against employees who refuse to sign will depend on the circumstances of the case and whether the agreement is enforceable under state laws.

Noncompetes aren't just for higher-level positions -- they're acceptable for employees at all levels. Again, to ensure you stay within the law, draft your agreements with your attorney's help.