Contractors Debate The Use Of Noncompete Agreements

The “dot-com” fallout provides some high-profile examples of workers who are finding it hard to re-enter the job market because of noncompete agreements they had signed as a condition of employment. Noncompete agreements restrict the ability of an employee to compete against his or her former employer upon termination of the employment relationship.

At one time, noncompete agreements for companies’ top executives were commonplace, but that is not always true now.

“We require all new hires to sign a two-year noncompete agreement,” said Steve Miles, Jerry Kelly Heating & A/C, St. Charles, MO. “I feel that noncompete agreements are necessary to protect our customer base and to prevent former employees from contacting or stealing our customers if they decide to start their own company.”

A high-profile example of noncompete agreements recently involved the Sprint Corp., which used a noncompete agreement to prevent its chief technology officer, Marty Kaplan, from taking company secrets to rival company WorldCom, Inc.

The hvacr trade may not have high-profile examples like this, but Miles’ statement reflects the policy of many mechanical contractors. Several of our consultants, however, responded that they were not in favor of using noncompete agreements. Consultants on both sides of the issue explored the pros and cons of these agreements.

Those in Favor

The consolidation boom gave birth to a new wave of noncompete agreements. News’ consultant Charlie Klapperich, Western Building Services, Inc./Comfort Systems USA, Denver, CO, sold his business to Comfort Systems USA, and has firsthand knowledge about agreements not to compete.

“Having been a part of the consolidation process from its inception, I have seen the use of noncompete clauses frequently, and am signatory to one of them as well,” said Klapperich. “Non-compete clauses are necessary, and, if constructed properly, are enforceable in most states.

“In my opinion, the agreements must be short and to the point.”

Those Against

“My experience with noncompetes reveals they only work if you are specifically compensated — because you did sign it,” said Scott Getzschman, Getzschman Heating & Sheet Metal/Service Experts, Fremont, NE. “Every state is different. Nebraska is a ‘right-to-work’ state, which means you can’t prevent someone from earning a living.

“So to have someone sign a noncompete without compensation is like signing a plain piece of paper. The cost of enforcing it is not worth the trouble.”

“We don’t use noncompete agreements,” stated Bill Flynn, Mallory & Evans Service, Scottdale, GA. “I believe that treating your people right is the best plan to protect your business.

“Requiring someone to sign a noncompete when they join the company sends the message that you don’t expect them to be a long-term employee. That doesn’t send a very positive message.”

Harry Friedman, N&M A/C/Blue Dot, Sarasota, FL, thinks that noncompete agreements have lost their strength in Florida since 1990. But it doesn’t matter to him if such agreements are enforceable or not.

“I have not felt the need for any such agreement or clause in my company,” he said. “I do not think that an unhappy team member will stay — with or without a noncompete. I prefer an open-door policy.”

“I feel that noncompete is more of an ethical issue than a judicial one,” said Tom Lawson, Advanced Air Conditioning & Heating, Inc., Bossier City, LA. “We have ethical agreements with our key people.

“An industry consultant has told me that a noncompete agreement would be in my best interest, but I don’t agree — at least not now.”

Aaron York, Aaron York’s Quality A/C, Indianapolis, IN, said that although noncompetes work in his state (Indiana), they create an atmosphere of distrust.

“I have found that a great employer-employee relationship far exceeds any ‘force you’ form,” he said. “In 25 years, I have not used one nor have I wished I had.

“I am not sold on them and wonder if they are worth the hassle.”

Things are a little different in Roger Grochmal’s neck of the woods — Ontario, Canada; Grochmal is with Atlas Air/ClimateCare in Mississauga, ON.

“The issue of noncompete clauses is not applicable here except in the case of an acquisition or partnership agreement,” he said. “Even then it has to be reasonable. The underlying principle is that you cannot deny an individual the opportunity to earn a living in his chosen profession.”

Are They Enforceable?

“I am not sure how well these agreements will hold up in court,” he said. “You have to realize that when these people leave, they need to work to take care of their families. The agreements need to be fair for both sides.”

“If someone leaves your company and uses confidential or proprietary information to compete against you, then you have no other legal recourse,” said Flynn.

“Any noncompete agreement needs to be reviewed by an attorney to assure that it is enforceable,” said Miles. “Ours has been tested in the [Missouri] courts and was found to be enforceable.”

Getzschman said that the wording of the noncompete is very important. “Legally, it is binding,” he said. “If a former employee signed a noncompete and then removed your customer files and tried to hire people away, you have a good chance of enforcement.”

York, who doesn’t believe in noncompetes, concedes that they are binding.

“My understanding is that noncompetes can generally last for two years, which is the enforceable time limit,” he said. “They have been held binding and enforceable in Indiana.”

“In Louisiana, I feel that there are too many loopholes to make a noncompete agreement stick,” Lawson said. “A person has a right to work.”

Getzschman’s ultimate solution? “Keep an open line of communication with your employees. Treat them well and show sincerity. On a whole, they will remain loyal,” he said.

Sidebar: Contractors’ Advice On Noncompete Agreements

Employees:

Publication date: 10/15/2001