Editorial: Noncompetes still need care, regardless of new ruling
Few hiring documents can cause as much angst for employers and their employees as noncompete agreements.
Many employers want them to protect their business's most valuable assets — intellectual property, client lists, manufacturing secrets and even goodwill. They can make employees uncomfortable, however, because of their explicit and implicit restrictions on personal freedom. A well-executed noncompete can tell key employees they add value to the company; poor ones convey lack of trust or even signal a work environment rife with turnover and negativity.
Done right, though, noncompetes can benefit both parties by spelling out expectations well in advance of that day — not necessarily inevitable — when they part ways. The key, according to midstate experts, is "no surprises."
Surprises can land employers in court.
A recent Pennsylvania Supreme Court ruling should give businesses more guidance on how to frame effective noncompetes by clarifying when and how to tell new hires they will be expected to sign one.
The case involved an offer letter to a skilled worker that merely referred to a contingency that the man sign an "employment/confidentiality agreement" when he started work. That turned out to include a noncompete, and when he moved to a competitor five years later, the trouble started. The former employer successfully sued him and his new employer, costing everyone thousands of dollars in the process.
How simple it would have been to specify the noncompete in the offer letter in the first place. But simple is not always clear or easy. The court's ruling, therefore, that the noncompete was valid because it followed closely on the heels of the hiring should give businesses some assurance that reasonableness matters. (Employees presented with noncompetes months later still must be offered some consideration at the same time, whether that is a signing bonus, raise, new position or the like.)
Still, noncompetes should be used judiciously. Not every employer needs them, and not every employee needs to sign one. Nor should they be confused with confidentiality agreements, which often do the job more effectively and enforceably.
The nature of your business and the specific duties of individual employees should be the determining factors in whether a noncompete is called for. Your business is special. Within the parameters of the law, the way you deal with employees should be tailored to its unique qualities.