Attrition is always a concern for business owners, but the risk is even greater when proprietary secrets are at stake. To help guard against talent drain, some companies use legal documents such as noncompete, nonrecruit, or nondisclosure contracts to prohibit exiting employees from taking their talents, knowledge, and co-workers straight to the competition.
Steve Taylor, owner of Taylor Made in Edgewood, Md., began using employment agreements after facing retention issues that accompanied a successful franchise launch and the resulting growth of his company. Already doing $4 million in full-service work, Taylor had added an Owens Corning franchise that quadrupled his revenue in just a few years. As his staff swelled to 130, Taylor struggled with waves of attrition. Worse still, he now had to worry not just about the cost of filling open positions, but also about protecting the proprietary systems that made his Owens Corning franchise a success.
COMPREHENSIVE AGREEMENTS To help resolve the issue, Taylor and his attorney drafted comprehensive agreements specific to various positions and required all key employees to sign. The agreements include noncompete, nonrecruit, and nondisclosure clauses. The agreements also lay out the wages, responsibilities, and performance expectations for each position, clarifying roles and responsibilities, Taylor says, to limit the need for micromanaging.
“We're trying to keep the people we hire from going into competition against us, and to keep the people we've spent the time and money to train from leaving the company,” Taylor says. “The protocol is: Don't work for a competitor and don't take my people; and if you take my people, I'm going to alert my attorney, and he's going to sue you.”
Legal experts caution, however, that even if they are meant to be legally binding, whether a breach of contract can be enforced depends on state law and, to an even greater degree, on the discretion of the presiding judge. Also, courts tend to favor an individual's right to work over the proprietary interests of a business owner. California, for example, is known as a “right to work” state, and non-compete clauses are all but unenforceable there.
Taylor acknowledges that his agreements may not be enforceable, but says they help set expectations and send a clear message to employees. Taylor is also freed from the distraction of worrying about poaching. Knowing he has done all he legally can, Taylor says, allows him to focus on running his business.
David Zuckerman is a freelance writer based in New York.