Protecting Your Small Business with Restrictive Covenant Agreements

Posted by on October 12, 2009 · Leave a Comment 

If you are a small business owner with even as few as one or two employees, ask yourself a few questions. Have I provided any specialized training to employees to enable them to do their jobs? Do I have repeat customers? Do my customers interact more often with one of my employees than with me? Could my employees provide the same or similar services or goods to my customers without me? If my employee went to work across the street from my office is it possible that customers would choose to do business with him/her instead of me? If your answer to these questions is yes, you may want to consider the use of restrictive covenant agreements.

Frequently, I hear small business owners state their belief that “because Florida is a ‘right to work’ state, non-compete agreements are unenforceable.” This belief is wholly incorrect. Restrictive covenants between an employer and its employees are specifically authorized by Florida Statutes Chapter 542. First, let’s define what we are talking about when we refer to a “restrictive covenant” agreement. In an employment context, these agreements generally may be split into three groups: confidentiality agreements; non-solicitation agreements; and non-compete agreements. A confidentiality agreement simply states that during and after an employee’s term of employment, the employee will not disclose the employer’s confidential information to third-parties unless authorized to do so. The employer generally defines the term “confidential information” in the agreement. A non-solicitation agreement provides that, during the employee’s employment and for a period of time after employment (usually 1-2 years), the employee will not solicit the employer’s customers on behalf of a competitor. Finally, a non-compete agreement goes further than a non-solicitation agreement and states that not only will the (former) employee refrain from soliciting the employer’s customers but that he will also refrain from even going to work for a competitor in a certain specified geographic range.

Now that we know the types of restrictive covenant agreements available to employers, we need to know what types of businesses should consider using one or all of these protections. The most common reason employers use restrictive covenant agreements is to protect customer relationships. In many cases, an employee and not the owner of a small business is the primary contact for a customer. Thus, if the employee leaves to go into business for himself or to go to work for a competitor, it is likely that satisfied customers will follow the employee. Examples of employees who are often able to take customers with them when they leave a job include salespersons, service technicians, such as computer experts and lawn maintenance workers, and professionals, such as doctors and accountants.

Are you training your employees to compete with you or providing them with an opportunity to develop substantial relationships with your customers? If so, do you have any safeguards in place to prevent these employees from leaving you and taking your customers with them? If not, restrictive covenant agreements may be an easy and efficient way to protect your business from potential interference by former employees.

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