Dealers often ask about the effectiveness of non-compete agreements for employees, particularly salespeople and sales managers. After some discussion, it often becomes clear that dealers really want protection that can be achieved by some less controversial type of agreement.
When dealers discuss “non-compete agreements” they may be using the phrase as a catch-all for three separate types of documents: (1) a non-compete agreement; (2) a confidentiality agreement; or (3) a non-solicitation agreement. Each agreement serves a different purpose, and all are not equally easy to enforce.
Non-compete
A non-compete agreement provides that an employee will not work in a competitive position or for a competing company for a period of time after leaving the employment of the dealer. Non-compete agreements can be difficult to enforce, particularly against non-management employees. Courts are concerned that non-competes restrain trade. They are also sympathetic to the needs of ex-employees who must be able to make a living. Here are some issues to consider if you want to enter a non-compete with an employee:
· In what capacity is the person employed? There are numerous reasons to want to protect against competition for a limited time and to a limited extent by a general manager privy to all your business methods and secrets. The reasons for a salesperson non-compete are less compelling.
· What is the geographic area? An agreement that requires an ex-employee to relocate to find employment in a chosen field will be disfavored.
· What is the duration? A few months to allow the dealership to hire a new employee to get into the job are more realistic than several years which will be viewed as punitive.
· What is extent of the prohibition? Is the employee simply prohibited from working in a dealership selling the line make the dealership is selling or is he or she prohibited from working in any capacity in the car business? The latter will likely be seen as greater than necessary to protect the interests of the employer.
This is not to suggest that non-compete agreements will not be enforced in the car business. However, courts will carefully examine non-compete agreements for any industry, and litigation about non-compete agreements can get expensive and lengthy. There may be better solutions to reach your goals.
Confidentiality
You should be concerned about employees leaving your dealership with proprietary information such as terms of deals with suppliers or lenders and – most important – customer information. This is your information which your dealership has developed through substantial investments of time and money. And when it comes to customer information, you may actually violate federal privacy laws if your protections are so lax that an employee can easily gather and leave with this data.
Employees have a general common law duty to protect confidentiality. However, that is not enough. Have a specific agreement that identifies what you consider to be confidential. You can have a confidentiality provision in your employment handbook, or you can put it in the documents you have new employees sign.
Employees should agree that:
· They will maintain the confidentiality of dealership proprietary information;
· They will abide by the company’s policy for protection of customer information;
· They will not misuse proprietary and customer information;
Make sure your policies and procedures are in place to protect this information. Be especially careful about customer information that should be available only to employees with a reason to use it when performing the functions of their jobs. Make the information available only in a format that makes it easy to retake after it is used.
Are your company’s IT privacy protections are up to date? Make sure that:
· Techniques are in place to protect your proprietary and customer information on your computer system;
· Passwords are regularly changed;
· Employees are aware of the need to protect passwords; and
· You monitor access that may be inappropriate.
Courts recognize the need to protect proprietary information. The problem is that it may be difficult to prove an ex-employee took your information, for example, when your customers start getting calls. However, where you can track down the person’s access to the information and the misuse of the information, a court is likely to enforce the employee’s confidentiality obligations – provided you have taken the steps necessary for the court to find that you were not lax in your own security procedures.
Non-solicitation
In a non-solicitation agreement, an employee agrees to not solicit other personnel to work for a new employer.
These agreements must be tightly written. And they are much more likely to be enforced against former managers who solicit your employees than against ex-employees who call their former workmates of the same employment rank and tell them about the “greener pasture” of the new employer.
Nevertheless, when you can prove that a manager who left your employment is soliciting employees to leave and join another dealership, these agreements can be effective in stopping the calls for an exodus.
New Employer Notification
New employers will not be bound by any of these agreements signed by your ex-employees. However, where the solicitation of customers or employees is being done by a former employee on behalf of a new employer, consider a notification to the new employer that the former employee is breaching his or her confidentiality or non-solicitation agreement and that the solicitations may constitute tortious interference with existing customer and employee relationships.