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What is a Non-Compete and How Do They Work?

By MARC STEWART Director of Sponsored Content, Coeur d’Alene Press

How Common Are Non-Compete Agreements

20% of American workers have signed non-compete clauses in employees’ contracts

A business owner approaching retirement hires an employee with the goal of having them take over the business in a few years. The owner trains them, shares all of the business’s secrets and then — betrayal.

The trusted employee quits only to start their own business — competing directly against their old boss.

To prevent such a scenario, more and more business owners are turning to non-compete agreements when they hire new employees. They are intended to help businesses keep trade secrets and proprietary information from falling into the hands of a competitor.

“We would like to see more of them used and as this area’s economy grows I would expect non-compete agreements to be much more commonplace,” said Coeur d’Alene attorney Merrilee Parr. “They provide protection to the employer and the employee so that neither one gets burned. It’s not widely known about.”

When Should You Consider Non-Compete Agreements?

Nationally, an estimated 20 percent of American workers have non-compete agreements. Nearly every state allows them, including Idaho. Merrilee said non-compete agreements are best suited for highly skilled employees, such as medical professionals and other business experts.

“For example, a professional wants to bring aboard a less experienced professional to either expand their practice/ business or in hopes of retiring soon with the new employee at the helm,” said Merrilee. “However they are worried that after all the time they spend in training them the new employee will either leave for another business or start their own. I can structure the employee contract to prevent that from happening that is fair to both sides. Once clients understand we can do that, their stress and worry is greatly relieved.”

John McClafferty, owner of Lake City Accounts, a small Coeur d’Alene accounting firm, included a non-compete agreement in his employee contracts.

“I did it to protect the business,” he said. “It’s a great safeguard and peace of mind.”

Non-compete agreements can limit the employee from working within a “reasonable” distance of the employer and prevent the employee from working for a competitor for a “reasonable” period of time.

But what does reasonable mean?

Can You Win A Non-Compete Lawsuit?

“It really depends on the business and the type of service they provide” said Merrilee. “It can vary a great deal. You couldn’t really limit a barista from making coffee drinks across town from your own coffee stand, but if there is a specialized, professional or advanced skill that has been mentored by the employer we could require that he/she not compete within a reasonable distance from your business. The purpose being to prevent my client’s customers from being taken by the new employee or directly competing.”

The penalties for violating a noncompete agreement are equally challenging to define and enforce — meaning a violation of the agreement usually requires a lawsuit. Currently case law regarding non-compete agreements is somewhat limited in Idaho and they are relatively rare in North Idaho.

“The employer has to prove damages and there is a high threshold,” said Merrilee. “You have to show that you lost revenue, clients, etc., in order to win the case.”

Merrilee has introduced a wrinkle into non-compete agreements — the buyout. It allows an employee to get out of the non-compete clause for a defined payment.

“In every case I analyze what the client wants versus what the client needs,” said Merrilee. “Lawsuits can be very costly and a buyout from the non-compete clause is a way to be fair and reasonable to both employer and employee, and limit litigation costs.”

For more information, contact Merrilee Parr, (208) 667-1227, or schedule a consultation online.

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