Employee competition comes up a lot. However, few people understand what rules apply in this situation.
What is Employee Competition?
Employee competition is the act by an employee of working in or aiding a competitive business of the employer. For example, an employee working part-time at an employer’s direct competition. There is no minimal amount of competition required to qualify. Therefore, it is important for employees to understand this offense.
Employees owe their employers very few legal duties. While employed, every employee owes their employer a duty of fidelity. What this means is that employee may not compete with his or her employer. This applies up to termination. Therefore, anything that happens after employment is fair game under this duty. Employees also owe employers a duty of good faith. This means employees may not act with malice or insincerity. The duty of good faith would prevent an employee from lawfully compiling a list of the employer’s customers to contact after employment.
Easy. During employment, your employee may not compete with you. Period. This is an implied duty. Unless your employment contract says otherwise, your employee may not compete.
Unless your employment contract says otherwise, after employment, your employee may compete. Therefore, it is a great idea to put some protections in place. These protections are restrictive covenants.
Restrictive Covenants Against Employee Competition
Restrictive covenants are contractually created obligations that prevent one person from doing something he or she was otherwise legally allowed to do. Non-compete agreements are restrictive covenants. So are nondisclosures. Employers can use these restrictive covenants to prevent employees from stealing their clients. For example, you can use a nondisclosure to prevent an employee from using or disclosing the names and contact information of your clients. Additionally, if enforceable for your situation, you can use a non-compete to stop an employee from competing with you after employment. Courts do not favor the use of restrictive covenants. Courts review them under a strict set of criteria. If done correctly, these covenants can help protect your business.
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