The Other Side Of The Non-Solicitation Agreements

Benefits For Your Employees And Protection For Your Business

Due to the enforceability issues surrounding covenants not to compete (see previous post) consider less restrictive arrangements such as a non-solicitation agreement (NSA) combined with an agreement protecting your company’s proprietary information.

While these agreements prohibit a departing employee from taking company assets in the form of other employees, customers, vendors and proprietary information, they do not prevent employees from leaving and competing with your business. For this reason:

• Employees are not as allergic to them as they are to covenants not to compete.
• Employees can better appreciate that your goal is to protect your business, rather than prevent their employment.
• Courts look more favorably upon these agreements.

I’ve found that when key employees are prohibited from taking employees, customers, vendors or proprietary information when they leave, their departure causes minimal and temporary disruption to the ongoing cash flow of a company. Most businesses do not need covenants not to compete to protect value and revenue.

Add Incentive Plans To The Mix

To offset, or more than offset, an employee’s allergic reaction to an NSA, consider offering the key employee a benefit greater than the perceived detriment of signing. Think of an incentive compensation plan as a huge spoon full of sugar.

Typically, incentive plans award both a cash bonus as earned and a deferred bonus designed to motivate the key employee to remain with the company for a number of years. The bonus is usually based on improvement in some aspect of company performance, such as an annual increase in gross revenue or cash flow. If the potential bonus (cash and deferred) is significant, say 20 to 40 percent or more of the employee’s annual compensation, the perceived benefit to the key employee normally more than offsets the “pain” of signing a non-solicitation agreement (NSA). If such a large bonus isn’t palatable to you, remember that you set the performance benchmarks that must be met to earn the bonus and you set the conditions under which the employee “collects” it.

Source: forbes

Patty Block, President and Founder of The Block Group, established her company to advocate for women-owned businesses, helping them position their companies for strategic growth. Charting the course for impactful, sustainable, profitable businesses, the beacon is control: of your strategic direction, your money, your time, your staffing, and your ability to bring in business. The Block Group brings together the people, resources and ideas that build results.

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