I previously wrote about the second most effective form of non-compete here. This kind of non-compete is drafted as narrowly as possible to maximize the chance that it will be enforced.
So what is the most effective form of non-compete?
The most effective form of non-compete is a happy employee who doesn’t want to leave the company.
If you’re an employer that’s probably not the answer you wanted to hear. You might even feel cheated by my headline.
Most companies that employ a sales force will not like this advice. But the problem is that companies who think they can solve the problem with a non-compete are probably (1) underestimating the value of happy employees and (2) overestimating the effectiveness of a non-compete.
I’m not a great businessman, so I don’t have any special insight about the value of happy employees, but I can observe what successful business people have said and done. My dad, for example, built a successful software consulting business that literally started in his living room. How? He recruited and retained top-notch talent by focusing on the quality of life of his employees. You might even say I got to go to college because my dad’s company had happy employees.
Another source is a businessman I don’t know personally, but he seems to have done alright. Richard Branson has said: “Take care of your employees, and they’ll take care of your business. It’s as simple as that.” In a similar vein, he said: “Train people well enough so they can leave. Treat them well enough so they don’t want to.”
So, while I don’t claim to be a business expert, I know that business people who keep their employees happy seem to do pretty well.
Non-competes, on the other hand. Those, I know a little about.
The legal problem with a non-compete is that there is almost always a dispute over whether it’s enforceable. The first thing I do when a client comes to me with a non-compete is to evaluate its enforceability. As I explained here, there are five things I look for in the typical Texas non-compete to determine if it is legally enforceable.
These five things have something in common: often the answer will depend on resolution of disputed facts. In litigator lingo, these five things often raise “fact issues,” meaning the case may have to go to trial before the judge decides if the non-compete is enforceable. As I explain in this video, that means time and money. A lot of time and money.
So how can you hold on to your best employees instead of ending up in litigation with them? Regardless of what kind of company you have, I can guarantee that you have two kinds of sales people working for you: above average and below average. Now, ask yourself these questions.
If a below-average sales person wants to leave the company and try to compete with you, do you really care?
If an above-average sales person wants to leave the company to work for a competitor, why?
There is always a reason. If money is an issue, then why is a competitor willing to pay the employee more? Is the competitor miscalculating and overestimating the value of the employee? Does the competitor recognize value that you may be underestimating?
If money isn’t the issue, what are you doing that is making your above-average employees unhappy? Is their boss a jerk? Do you give them enough independence? Do they feel like they can go on vacation?
Some hard-nosed employers will think me naïve. You don’t understand my industry, they will say. It’s intensely competitive. Everyone is fighting for the same limited group of customers. It’s cutthroat. Sales people only care about money and will leave their employer at the drop of a hat for the promise of a bigger paycheck. I can’t afford to invest a lot of time and money in training my people and helping them develop customer relationships, only to have them turn around and leave, taking customers with them.
So let me get this straight. First, you’re saying your business is very competitive and requires skilled employees. Second, you’re saying that developing high performing employees takes time, money, and effort. Third, you’re saying that if you require your employees to sign non-competes, you can hold on to your best employees and customers.
To which I respond, who is being naïve?
p.s. I’m beta testing my new YouTube channel called “Non-Compete News.” Please check it out here and give me some feedback! Official rollout coming soon.
Zach Wolfe is a Texas trial lawyer who handles non-compete and trade secret litigation. His firm Fleckman & McGlynn has offices in Austin, Houston, and The Woodlands.
These are his opinions, not the opinions of his firm or clients, so don’t cite part of this post against him in an actual case. Every case is different, so don’t rely on this post as legal advice for your case.