How To Not Train Your Competitor

traverselegal - September 19, 2013 - Trade Secrets

Matt: Hello, and thanks for tuning in to Trade Secret Law Radio. This is Matt Plessner, and for todays show, we are once again targeting business owners. Getting to the point where you expand your business and start hiring new people can be very exciting. But what if you train someone, and they split off and start to business to rival yours? Can anything be done about it? We’ll answer this and much more as we speak again today with attorney Mark Clark of the Traverse Legal office of Traverse City Michigan….Mark, how are you?

Mark:  I’m well Matt, how are you?

Matt: Doing very well, thanks for asking.  Now Mark, I guess this should hit home for both of us, I think.  I guess, if not careful, anyone self employed can run into this.  Let’s start  simple: Is there a way to prevent it?

Mark:  Matt, there is a way to prevent the training of your employees for the benefit of either themselves or your competitors in most states, including Michigan.  The only way to do that is to have them sign a valid non-compete agreement.

Matt:  Ok, and what should be included in this agreement?

Mark:  Well, generally, in most states, the law provides that a non-compete agreement that would restrict an employee from working for a competitor or from competing in some other way with your business must, number one, protect a legitimate business interest, and secondly, be reasonable in both duration and geographic scope.  And what that means is this: A legitimate business interest, again, in most states including Michigan, has been held by the courts to cover the issue that you raised, and that is, can a reasonable or legitimate business interest be protective of the training that you’ve provided your employees.  And most courts, including the Michigan courts here in the state of Michigan have held that protecting that investment in training is a legitimate business interest.  Now, the courts have also held that you cannot prevent an employee from using their general skills and knowledge and taking those with them to their next employment.  But your issue is a little bit different, and is specifically with regard to training and education that you provide that employee while they’re employed with you.  That is definitely protectable, and as long as it does not encompass their general skills and knowledge that they brought with them, they can be restricted.

Matt:  Mark, you mentioned ( I think what you said was) reasonable restrictions, like with time and geographic location.  What does that usually mean?  Like, how long…Is there a certain cutoff duration or a certain cutoff geography, and how does that work?

Mark:  That’s an excellent question, and it varies depending upon the nature of the employee and their position.  If you have a higher level of employee and they are very skilled, and  you provided a significant investment in their training and the knowledge they are going to take with them, you can justify a longer non-compete to cover the geographic area that your business may be participating in in the market place.  So if you have a higher level employee, your’e going to get away with a longer non-compete.  If you have what we might term as a “lower level” employee who has more general skills  rather than particularized skills relative to your business but nevertheless, your provided that training, you’re going to get away with a little bit less in duration relative to your non-compete.  Keep in mind, that if you attempt as an employer to overreach and sign your employee to something that is, or a court could consider to be, unreasonable, you’re at risk of loosing your entire non-compete agreement.  In Michigan, for instance, non compete agreements, in duration from six months to three years, have generally been held to be valid, again, depending upon the position that you’re speaking of.

Matt:  Now, Mark, what is the different between generalized skills and particular skills?

Mark:  Well, I’ll give you a for instance:  If you have a higher level employee of maybe even a partner who a president/vice president of the company who you’ve trained and who has become familiar with your (through their experience and training with the company) business model for marketing plans; your long range plans for the grown of the business and so forth, that obviously is very particularized knowledge that they have acquired through their experience of training with the company, and that will justify a more restrictive non-compete than that individual’s assistant, for instance, who may have learned a lot about your specific business, but since they are a lower-level employee, not a decision maker, and are utilizing for purposes of their employment more general skills and knowledge than particularized skill and knowledge in performing their employment.  That will generally require a less-restrictive non-compete agreement because the law provides that you cannot unreasonably restrict somebody’s ability to go out and earn a living in their next employment.  So, reasonableness is the key to the validity of a non-compete agreement in Michigan and in most other states.

Matt:  Well, thank you very much, Mark.  One final question for you:  Regarding this non-compete agreement, how, I guess, do you come about it?  Should you write it?  Should you have, like, a lawyer write it?  Could you just come across one that’s fitting to you business on the internet and tweak some things, or how should you do that?

Mark:  Well, Matt, I come across clients and respective clients all the time who contact me and say, “I want to enforce a non-compete agreement, here it is.”  and more often than not, if they’ve simply obtained a template somewhere or a do-it yourself kit, I review the non-compete agreement and to advise them that probably they’ve overreached or they’ve done something to invalidate that non-compete.  So I think it’s very important to invest some money upfront in having an experience non-compete attorney review your circumstances and the employees job-description, the nature of your business, and come up with a specific and tailored non-compete relative to both the business and the employee in order to insure your best chance at not having it invalidated by the employee at a later time.

Matt:  Well, Mark, I want to say thanks again for joining us here today.

Mark:  Matt, it’s always a pleasure.

Matt: Thank you very much.  I’m Matt Plessner, and join us next time on Trade Secret Law Radio.

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