RA-A-A-ID!

Employment Agreements

The first question is whether the employees had an employment contract. If you hired them on an at-will basis, don't expect to be able to sue their new employers for wrongful interference with a contractual relationship. "The hallmark of at-will status is that either the employer or the employee can terminate the relationship at any time, for any reason, and with or without notice," Pasek says. "The courts will not tolerate an employer's complaint based on interference with contractual relations if the employer has preserved its own right to end the relationship."

If you do have an employment contract, you may have some protection in a binding non-compete clause, which states that the employee may not work for a direct competitor within a given geographical area and for a given period of time. That kind of agreement is pro-hibited in some states, however, and in states where they're allowed, they're not always enforceable in court. Courts require first that the non-compete agreement be reasonable, which generally means limited in scope, time and duties. You can't demand that the employee never work for any competitor anywhere. But a court may enforce an agreement that prohibits the employee from working for competing companies within 50 miles of yours within the next year, or for soliciting the company's customers within the next two years.

What contractual limits a court considers reasonable depends on the type of business. "In a Web-based business, what's the geographic limit?" asks Pasek. Internet companies reach the whole world. And technology changes so rapidly that the traditional one- or two-year limit may be unreasonable. "For Internet businesses, one or two years is like a generation," he says. Pasek notes that, in some states, courts are allowed to "blue line," or edit, an agreement in question to make it reasonable, rather than refusing outright to enforce it. If that practice is allowed in your state, you can include a provision in the non-compete agreement asking the court to blue-line the agreement if the court considers it unreasonable.

For a non-compete agreement to be enforceable, the employee must have been given some "consideration" for signing it. That means you have to give the employee something in exchange for giving up the right to work for competitors. In some states, the only consideration needed is continuing employment-in other words, sign this and you get to keep your job. In other states, you have to ask for the signature at the start of employment or along with a promotion or pay increase.

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This article was originally published in the September 2000 print edition of Entrepreneur with the headline: RA-A-A-ID!.

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