A Must Read article about Signing Non-Compete Clauses.
Sometimes people think I make up the stories I share with you. I don’t have to make up anything. The world is filled with crazy stories like this sad tale I heard the other day.
Jim just celebrated his fourth year as a medical supply sales rep. He hit his numbers every year. Things were looking great for a rewarding career with this growing company, acquired last year by a larger competitor.
Until one week ago when every sales person received that fateful email. Everyone would be required to sign a non-compete by the following Friday. Out of the blue. No notice. No consideration for signing away his rights to work for a competitor or vendor or anyone who even sells batteries in a health care facility of any kind.
Jim was beside himself. The more experienced reps were terrified. No one was sleeping well.
I can imagine what prompted the new non-compete requirement. A good sales rep quit. The new president asked HR if that fellow had a non-compete. Upon hearing that the company did not require non-competes, the CEO ordered HR to make it happen immediately. HR, doing what it was told without comment, made it happen.
But these things should NOT happen. Not to hard working employees happy with their jobs and the company. This company did not have engagement problems or employee turnover. Sales were strong. Employees were relatively happy. Past tense.
The proper response from HR should have been, “Let’s figure out why that guy left. We will check our turnover and see if we have a problem then implement non-competes for all new employees. Eventually everyone will have a non-compete if that is what you want.” But that is not what happened.
Here is why this situation is a big problem for the company and the individuals.
Are the non-competes forced in this situation even valid?
A non-compete is a legal document that prevents employees from going to work for a competitor for a period of time. The purpose is to protect hard-won company assets, ideas and treasures from running off to competitors. Employees agree to forgo major employment opportunities to benefit the company.
This requires consideration: Like any legally enforceable contract, the side asking for the benefit (the company) should offer the person making the sacrifice (the employee) substantial consideration (that is a legal term) to waive future opportunities. Just keeping your job or receiving a bonus you would ordinarily receive is not sufficient consideration. It has to be something else, something special that makes the sacrifice worthwhile.
In Jim’s case, the company offered each sales person a guarantee that each employee would receive the commission they would normally receive anyway in their draw-versus-commission compensation plan. Any sales person worth their salt who make their quota would receive that commission anyway. How is that any kind of consideration for signing away Jim’s future employment opportunities?
Can’t be signed under duress: One side of the contract cannot force the other side to sign the contract without having time to review and consider the options. In this case, the company gave the employees one week to sign or be fired. Wow! Talk about pressure. One week is not even sufficient for the employees to seek legal advice much less decide to sign away significant future employment opportunities. Jim wasn’t sleeping or eating or even thinking clearly. He was a mess. The senior reps were in worse condition.
Could the new non-competes really bind the employees without proper consideration and being forced to sign under duress? It is hard to tell. The only way either side can really know is to take the case to court, an expensive proposition.
In the meantime let’s look at what the company achieved with this effort:
- Sales go down. Employees are very upset and distracted. They are thinking and talking about non-competes rather than getting sales.
- Employee satisfaction declines. Employees are talking about quitting or planning to get fired. Previously they were relatively happy and stable without a lot of turnover. Employee satisfaction is directly related to profitability.
- Employee turnover increases. Employees are planning to leave even if they sign the agreement. Turnover is expensive. Calculate turnover at 1.5 times total annual salary. The idea is to reduce this cost, not take steps that will increase turnover.
- Company brand takes a hit, impacting ability to recruit. Dissatisfied employees are spreading the word to friends, family and anyone who will listen. I heard about it at a social event because it is all Jim talks about to anyone who will listen. I didn’t even know Jim before that social event! Who wants to work for a company that treats people this way? I made a mental note of the name so I can tell clients to avoid that company.
My advice to Jim? SEEK ADVICE FROM AN ATTORNEY IN YOUR STATE! This is what I would do. I would not sign the agreement unless they force me to. Then I would sign the agreement but cross out the two paragraphs about non-competition. The other paragraphs about trade secrets and confidentiality are fine. See what the company does. As a last resort, I would sign the agreement then start looking for a job because it won’t get better from here. I gave Jim a copy of my book, Job Search Marketing Plan.
My advice to companies? This is an object lesson. Learn from this foolish medical supply company. Avoid actions that undermine your brand and hit your bottom line.
My advice to HR? You don’t have to blindly do whatever the CEO says. Your job is to give good advice in a manner that convinces the CEO to do the right thing for the company AND the employees. Because after all, employees are your greatest asset. At least that is what we tell our employees.
I would be glad to help anyone impacted by this kind of situation in any way I can.
In the meantime, don’t settle for a mediocre career that you don’t want anymore! LinkedIn offers many ways to find the ideal job or career for you! Get your FREE copy of the LinkedIn Career Advancement Tips and find the perfect career today.
DISCLAIMER: I am not an attorney. I am speaking from my own perspective. This article represents my own views and is not a substitute for legitimate legal advice. PLEASE SEEK ADVICE FROM AN ATTORNEY SPECIALIZING IN EMPLOYMENT LAW.