By David M. Fellman
Last month I wrote about broadening the bandwidth of your relationships with your customers, as a means to protect yourself against the situation where a salesperson leaves you to go to work for a competitor. This month’s topic is non-compete agreements, which give you another level of protection.
I have to admit that I’ve become much more of a proponent of this sort of agreement recently. Twenty years ago, I would have said that you simply don’t need a non-compete agreement as long as you manage your business “defensively” as I described last month. Now, though, I think the additional level of protection is worthwhile. Non-competes are tricky, though, and often difficult to enforce—especially some of the agreements I’ve seen in the printing industry.
A few years ago, I got a call from a printer who was facing a situation where a former salesperson was violating a non-compete. The agreement said that the salesperson could not work for another printing company within a 200 mile radius for a period of five years after termination or separation for any reason. Apparently the salesperson had contacted a lawyer who told her that the agreement was not enforceable, and I told the printer that I thought the lawyer was probably right. The guiding principle behind a non-compete agreement is to protect the old employer from being damaged when an employee goes to work for a new employer, while still allowing the employee to use his/her skills and experience to make a reasonable living. If the provisions of the agreement are unreasonable, the chances are pretty good that a judge will throw it out.
What Is Reasonable?
So what would be reasonable? I think a reasonable term would be one year, and I’d be happy enough with six months. As for other limitations, all I’d really care about is that the salesperson stay completely away from any customers he/she developed while under my employ, any prospects that he/she “registered” while under my employ, and any of the other customers in my Top 10 or 20 or 50 accounts—whatever number best represents the 20% of customers who probably represent 80% of your business. I think a competent judge would say “that sounds very reasonable, stay away from those people!” Remember, our society doesn’t permit slavery. You cannot prevent a former employee from making a reasonable living in his/her chosen field. All you can do is try to protect yourself from any direct harm.
By the way, let me define “registered” because this is an important concept. I think you should be keeping track of any salesperson’s prospect list, if for no other reason than to be sure he/she is working on enough real prospects. Beyond that, this level of management can also help you prevent work you’ve paid for from benefiting another printing company instead of yours!
Another issue to keep in mind is that in most cases, a non-compete with an employee has to include some "consideration" for the employee. That means something of value needs to be exchanged for the non-compete, or else a court might declare that it's unenforceable. If the employee is a new hire, and the non-compete is included in the original hiring paperwork, the consideration can simply be that they are getting the job. If it's an existing employee, the consideration can be a promotion, a raise, or something else of reasonable value. You can learn more about this aspect by clicking here.
Dave Fellman is the president of David Fellman & Associates, Raleigh, NC, a sales and marketing consulting firm serving numerous segments of the graphic arts industry. Contact Dave by phone at 919-363-4068 or by e-mail at dmf@davefellman.com. Visit his website at www.davefellman.com.