Ten Fatal Mistakes Business Owners Make - No. 9: Failure to Set Up Reasonable Restrictive Covenants
Every evening at closing time, your employees walk out the door with your company's most prized possessions - your intangible assets. If everything goes as planned, they bring those assets back the next day intact.
Intangible assets account for more than 75 percent of the value of a publicly traded company; for smaller companies, that amount may be even greater. Intangible assets are the essence of your business. Your employees are the greatest threat to your intangible assets.
You can — indeed, you must — protect your intangible assets through a variety of specifically tailored means. The law protects your trade secrets if you take reasonable steps to maintain the confidentiality of the information. You also can secure your customer relationships and keep your employees from competing unfairly through proper use of restrictive covenants.
The law of restrictive covenants varies dramatically from jurisdiction to jurisdiction, so you need the advice of experienced legal counsel to properly draft and enforce your agreement. In Arizona and in most other states, a carefully drafted restrictive covenant is critical to protecting your intangible assets.
Restrictive covenants take on many forms. Non-solicitation agreements prevent former employees from contacting your customers and staff for a time after they leave your company. The non-solicitation period allows you to renew and strengthen the customer relationship without your former employee interfering.
Confidentiality agreements protect your trade secrets and other confidential information.
Most states will enforce limited non-compete agreements if they are no broader than is necessary to protect your legitimate business interests.
Your ability to enforce a restrictive covenant varies widely depending on the nature of your business, the employee's responsibilities and duties, and the legitimacy of the interest you seek to protect through the covenant. In every situation, however, one thing is certain: you must act before your intangible assets walk out the door. You snooze, you lose.
Protect your business through narrowly tailored restrictive, and your business will boom.
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Posted by BiziBoom Blog at 8/4/2009 8:52 PM 
Categories: E-book,Ten Fatal Mistakes,Unfair Competition,Non-Compete Agreements,Legal
Tags: Ten Fatal Mistakes Unfair Competition Legal
Categories: E-book,Ten Fatal Mistakes,Unfair Competition,Non-Compete Agreements,Legal
Tags: Ten Fatal Mistakes Unfair Competition Legal
Cool,
Keep up the good work,
Anyway, thanks for the post
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Nice post, this is really helpful for me.
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Interesting post - these covenants make me squirm, but they seem to be a necessary evil. As you rightly point out, a business owner needs to be well-aware of the laws in his/her state and continuously enforce these laws with the employees.
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Really interesting, but where does the 75% figure come from? How does one measure an "intangible" to get a statistic? Whatever, your point is good - that businesses should protect themselves, but you can't expect either to tie an ex-employee's hands unfairly.
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Valuable information! Looking forward to seeing your notes posted.
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Fascinating read, thanks. I agree that thinking through, and putting in place, restrictive covenants is necessary to a degree. However, you are dancing on a fine line between control beyond the workplace, and individual freedom. You can't function as the thought police. There is a reasonable and ethical medium, and I would suggest that it is often difficult to determine exactly where that lies.
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