Walking Employees Through It: Why Do I Have to Sign a Non-Compete?

A couple of weeks ago I riffed on how the wisdom of asking questions about a non-compete depends on who's asking... and who's listening.  My point was the reaction to questions on a non-complete is based on a sliding scale of how talented you are, and how the HR Pro fielding your question views the world.

One of the reasons I blog is that the reactions I get from my posts help me learn and get best practices from my readers, many of who are obviously pretty talented in what they do within the Talent/HR game. 

Case in point: This description of "how to" talk to new employees wary of signing a non-compete, sent from a long time VP of HR reader of the Capitalist

Read up and learn, kids:

"I usually start off explaining that the non-compete is one of the requirements for hire, I will not waive the requirement but I am open to answering any and all questions you may have.  I also tell them that I am more than willing to cover this with them section by section explaining the intent and meaning.  My practice has been to be very open about what they won’t like, I like to raise the issues so that they open up to me about what they are thinking. In my experience if you don’t do that, they will have their sister's attorney friend review it and get them agitated about how we are holding them hostage. 

I always explain the non-compete means the company is committed to investing in you, the new employee.  This investment will make you a better you.  We want your success to translate into company success.  As you gain experience and knowledge in our business, it is normal that good people will attract the attention of companies that we compete with. 

We don’t want you to leave and take your knowledge and understanding of our strategies to a competitor and use it to take business away from us, putting at risk all of the employees who rely on us for their livelihood.  We have had former employees leave our business and go to a competitor and steal business away from us using their knowledge of pricing, terms, service and their relationships.  When we say we invest in you, we are going to (if this is a customer-based position) introduce you to customers, pay your expenses as you develop the relationship, provide support to service the customer and in short, do what we can to ensure that you as the face of the company be presented in the best light.  That is the investment we are making and trying to protect.  In return, we are going to pay you well, invest in your growth, and reward and recognize you as you grow.

Invariably they always say "this agreement is so one-sided, what am I getting".  I then say, well beside an offer of employment with a great company, yada, yada, the document is one-sided (I always say that I am not ashamed to say this) because we take the protection of our business seriously.  As a smart person, would you want to work for a company that did not do what it could to protect itself? 

If I want to “flatter” them some more, I say (which is the truth) that not everyone we hire is asked to sign a non-compete. 

The non-compete does not prevent you from leaving us and going to work, it only prevents you from going to a competitor, and even then, it doesn’t prevent you from going to work for a competitor in a different role than you currently have. 
 
To be honest, I have only had a couple people pass on an offer because they would not sign a non-compete.  The hiring managers usually try to get their bosses up the chain to allow an exception.  I have not had one instance where I have been overruled, because I typically remind them to think about why the candidate doesn’t want to sign the agreement.  Either they don’t want to commit, or they have had a bad experience in the past (which means they bailed on their company to go to competition), or they are paranoid, which is a personality trait that cannot lead to good things. 
 
The real test of non-competes is to implement them to all current employees.  That is where the real fun and games are.  All the senior guys are gung-ho in the beginning to get everyone signed up.  At least until you tell them that it isn’t optional, meaning, it’s a condition of continued employment, meaning, if they don’t sign, we have to terminate." 

BAM!  I can't provide you with a better how-to manual on walking employees through a non-compete than that.  Special thanks to "John", who allowed me to publish as long as I promised not to use his real name.

If John was an entertainer, he'd drop his microphone for dramatic effect after sharing that knowledge, like Randy Watson, of the band Sexual Chocolate, leaving the stage in Coming to America.  Don't know what I'm talking about, watch the clip below from the Eddie Murphy classic.  Fast forward to 2:05 in the clip if you're in a hurry...

Comments

[Paul Hebert]

Where do I start?

First - I've worked at companies that made me sign an non-compete. I've also worked at companies that didn't. I liked the one that didn't better.

Second - the idea of a non-compete is based on the assumption that I'm not trustworthy. Not the best way to start a relationship. Every reason given for having a non-compete is based on the fact that you're afraid that I will use propriety information to compete against you. That = lack of trust.

Third - if I am untrustworthy - I can easily go to work at a competitor in a "different position" and still funnel the same information to people to compete against you so at best you delay my direct involvement for a while - but you can't eliminate it.

Fourth - as the CEO said to me from the company that did not have the non-compete - "if you leave us that's our fault, not yours. This makes us want to keep you if you're successful. If you're not successful we'd just as soon have you go to the competition."

Fifth - non-competes are somewhat unenforceable in many states. It's losing some of it's power so why bother.

Sixth - in most businesses what we think is proprietary, secret, etc isn't. We almost always overvalue our "proprietary knowledge" so the premise that that knowledge will do damage is somewhat suspect. Unless you're tasked with the 11 herbs & spices from the Colonel - or have the Coke formula - not much is "proprietary" - and what is - probably isn't that important.

Seventh - I just don't like them. So there!

[Crystal Peterson]

Not a fan of non-competes, but I am a fan of non-solicitiation agreements. It doesn't keep you from going to work for the competition but it does keep you from trying to solicit any of our business, current and prospects. But Paul makes some good points, especially #4 - if I have a top-notch employee and they leave me for the competition, that's our fault. Why were we not engaged enough with that employee to keep him?
By the way, classic clip from Coming To America!

[Steve Boese]

I have signed them once or twice in the past figuring they were not enforceable anyway, but I agree with Paul and Crystal I am definitely not a fan from either side. My main issue with the post is that you buried the Sexual Chocolate video too far down in the post, it should have been the lead!

[Allyson Smith]

In my previous company, sales people were asked to sign non-competes. We were told by regional HR leadership not to push the issue if the candidate didn't want to sign which completely negated their value. I think they are entirely too restrictive. In my current company, we use non-solicitation agreements which I think may be more effective in achieving what you want. They are only for a year after an employee leaves but during that time they can work wherever they wish in whatever role but they are unable to directly solicit away current employees or clients without fear of litigation. I think that people ultimately respect them. In the industry that I work in, this is a necessity. The industry is very incestuous.

[Lance Haun]

"I typically remind them to think about why the candidate doesn’t want to sign the agreement. Either they don’t want to commit, or they have had a bad experience in the past (which means they bailed on their company to go to competition), or they are paranoid, which is a personality trait that cannot lead to good things."

Those are false choices presented by "John." One of the reasons may be the non-compete is completely unreasonable. Or, of course, you can just assume that anybody who disagrees with your company's policy is paranoid or disloyal and doesn't have a legitimate point.

I've never had to sign a non-compete and I wouldn't sign a non-compete unless...

1. It was limited to very direct competitors (by name preferably if it is a tight industry). None of this vague "determined by the company BS." Spell it out.
2. The time frame and other terms aren't unreasonable.
3. There existed some sort of out clause or payout if there was an involuntary termination.

In a lot of ways though, I am a lot like John. Who wants an employee that just carelessly enters into an agreement that can hurt their earning power? If the business wants to protect their bottom line and get respect for it, the business has to respect a future employee wants to protect their bottom line.

Two way street.

[Ann Bares]

Hey Kris - good discussion! My 2 cents worth... As someone who grew up in consulting firms and surrounded by non-competes, I favor Charles Green's (The Trusted Advisor) take on them - that they are "manifestation of sick management thinking" and "symptomatic of failed people management" - as expressed in his post below, titled "You Empower What You Fear":

http://trustedadvisor.com/trustmatters/120/You-Empower-What-You-Fear

So THERE!

[Kris Dunn]

Duuuuuuuuudes -

I wasn't saying Non-competes were a good thing or enforcable, I was just simply saying that if you have to communicate and defened them, I like my brother's talking points.

Plus, I'm dropping the microphone like the guy in the Coming to America clip RIGHT NOW...

[John]

Why would any company ever hire someone stupid enough to believe a non-compete was binding??? I signed one of those once and gave my two weeks when a competing company offered about 5500 more. Not a big difference but there were other issues involved. The prior company tried that nonsense on me which turned out to be a good laugh for me and my new employer. Just for trying that silliness, I went ahead and skipped out on my two weeks. Not my style ordinarily but respect is a two way street.

[Kent Pritchett]

Late comment, but I used this approach a few weeks ago in Singapore when recontracting employees who came to us via acqusition. The new contract had enhanced non-compete and NDA provisions and I focused on the talking points provided and was able to navigate through the discussion. They weren't happy, but they understood...that was all I could aks for.