The non-compete clause in employees’ contracts has become newsworthy nowadays. This is because more and more businesses are requiring non-compete agreements from their employees. Is it a must for your contract?
According to Steve Greenhouse of The New York Times, there has been an increase over the past few years in a number of industries of the use of these clauses. Aside from the traditional technology and manufacturing industries, many businesses use these clauses as a means of protecting intellectual property.
Let’s face it. Losing your trade secrets, key employers, or customers to your competitors can be detrimental to your car wash business. These are very valuable assets to your car wash business. It is but natural to want to protect them. A non-compete clause in your car wash employees’ contracts can be an effective tool to protect these assets.
Non-compete clause defined
What is a non-compete clause? According to Investopedia, a non-compete clause is “typically an agreement between an employee and employer where the employee agrees not to use information learned during employment in subsequent business efforts for a set period of time”. Live Career.com calls it the business version of a prenuptial agreement. Non-compete clauses are utilized by employers to protect sensitive processes, technologies, and other trade secrets, and information. According to the same source, the more competitive a field, the more likely employers will ask prospective employees to sign contracts that contain a non-compete clause. These employers do not want key employees to leave and work for their competitors. Or in any case become consultants or freelancers.
In general, a non-compete clause covers three aspects:
- Traditional non-competes. These clauses prohibit the employees from joining competing business/es identified by name or description during a specified period of time and within a defined geographical area.
- Non-solicitation agreements. These agreements prohibit former employees from approaching customers, poaching employees and/or wooing suppliers of the former employer.
- Non-disclosure agreements. These agreements prohibit former employees from using or revealing information the former employer wants to keep private, which may be product formulations, client lists, marketing plans or some other proprietary information.
Non-compete clause: Pros and Cons
- A non-compete clause can protect your trade secrets and other confidential information from reaching your competitors when your employee leaves.
- A non-compete clause can help you ensure that your employee will not leave your car wash business within a certain period of time. This gives you some protection of the investment you put into your employees. One specific example of such investment is training.
- You will know that your employee is committed to your car wash business if he signs the non-compete clause. It shows that the employee is really involved and has no plans of leaving any time soon.
- An effective non-compete clause can prevent your employees from taking your car wash customer with them if they leave.
- A non-compete clause will discourage employees from leaving, joining competitors, or starting their own car wash business that may compete with yours.
- Some start-up companies have the habit of stealing key employees from competitors to jump start their new companies. A non-compete clause can prevent your key employees from taking their industry knowledge and your customer base with them to the start-up car wash business.
- A non-compete clause can only offer a short-term protection of trade secrets and other confidential information since the clause has to specify a specific period of time, like 6 months or 1 year.
- If an employee has been considering leaving your car wash business, introducing a non-compete clause along the way might hasten that decision.
- Asking your employees to sign a non-compete clause can give them the impression that you don’t expect them to stay for a long time.
- Depending on your state, there are limits as to when non-compete clauses can be enforced. So before you ask your employees to sign, find out what’s legal and not legal in your location.
- A non-compete clause may cause the best candidate for the job to not sign an employment contract with your car wash business.
- Enforcing a non-compete clause costs a lot. Litigation can be expensive and time and energy consuming.
The rise of businesses including a non-compete clause in their employees’ contracts alone tells us that non-compete clauses are essential to the security of your car wash business. Please note that it makes perfect sense to include a non-compete clause in contracts of top executives or employees that will be exposed to your trade secrets. However it is not necessary to include one in the contracts of your rank and file. Before you go ahead and draft a non-compete clause, make sure you know what your objectives are.
Remember that like a franchise agreement, contracts bind both parties. That means you and your employees! So make sure that you get the help of a lawyer to ensure that your non-compete clause is effective in protecting you and your car wash business.
Perhaps apart from including such a clause in the employees’ contracts, one sure way to be assured that your prospective business is protected is to tie up with franchises having proven business models. This will entail that the brand has the best practices, start up training, and even management of employees. Partner with the authority in the auto detailing industry. It’s time to give the DetailXperts opportunity a chance to bring you to a more successful business lifestyle.
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