Requiring Noncompetes:Are You Overdoing It?

By guest author: pmphrblog for Portnoy, Messinger, Pearl & Associates, Inc. Tri-State area human resources and labor relations consulting firm.

Does your business require all new hires to sign a noncompete agreement? Are those agreements enforceable? The practice of requiring all employees -- including low-level staff -- to sign noncompetes has come under fire recently, with federal and state both targeting the issue.

The New York Attorney General’s office recently settled cases it had brought against Law 360, a legal news service, and the sandwich chain Jimmy John’s. Both Law 360 and Jimmy John’s Sandwiches have had a practice of requiring low-level employees to sign noncompetes. At Law 360, these employees included journalists fresh out of college; at Jimmy Johns they included sandwich makers. The Attorney General has stated, “Unless an individual has highly unique skills or access to trade secrets, non-compete clauses have no place in a worker’s employment contract.”

Furthermore, in May the White House issued a report on the use of noncompetes. The report asserts that noncompetes can depress wages and reduce workers’ mobility. The report also notes that employees are often asked to sign a noncompete only after they have already accepted the job and declined other offers, at which point they have little leverage. Further, the report expressed concern over the increasing number of lawsuits brought by employers to enforce noncompetes in recent years.

Notwithstanding these concerns, there are circumstances where noncompetes are indeed necessary for protecting an employer’s proprietary assets. In New York and many other states, noncompetes are enforceable, if reasonable in time and geographic scope, where necessary to prevent disclosure of trade secrets or confidential customer information, or where the employee’s services are deemed special or unique.

Accordingly, when considering requiring an employee to sign a noncompete, employers should ask themselves: If this employee were to leave and joins a competitor, in what ways might our business be harmed? Are we concerned she would use our proprietary information for the benefit of the competitor? Or is our primary concern that she might take our clients with her, or recruit our other employees to join her? Or is it simply that we don’t want to lose her as an employee, period?

If the employee will have no real access to trade secrets, business strategies, plans, or similar proprietary information, then there is probably no need for a noncompete. If the main concern is that he/she will poach clients or other employees, this can be addressed more efficiently with a nonsolicitation agreement. If the employer is simply using noncompetes as a retention device---i.e., trying to discourage employees from leaving by limiting their ability to find new jobs---it would be well-advised to consider other, more effective methods of employee retention.

There is no doubt that noncompetes have a place in the business world. But they should be used thoughtfully, and when actually needed. Requiring everyone from the CEO to the mail room clerk to sign a noncompete is neither necessary nor a good business practice. For guidance on the use of noncompetes, please contract an HR professional at Portnoy, Messinger & Pearl.

This article is intended for general information only and should not be construed as legal advice.

For more information on labor relations please visit us at: 
http://www.pmphr.com/ or email: info@pmpHR.com.

About Portnoy, Messinger, Pearl and Associates:
Portnoy, Messinger, Pearl and Associates, Inc. (PMP), the oldest labor relations consulting firm representing management on Long Island, was founded in 1964 by former union organizer and worker’s rights advocate, Murray W. Portnoy. Initially, Murray offered human resource consulting and union contract negotiating services to a handful of clients. Today PMP has a full staff of experienced and talented human resources and labor relations consultants, labor and employment attorneys, and administrative personnel. Murray Portnoy’s values and vision remain at the core of PMP’s mission and principles.