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LEGAL SPEAK: Labor and employment attorney Rick Temple often drafts restrictive covenants for clients such as Great Southern Bank.
LEGAL SPEAK: Labor and employment attorney Rick Temple often drafts restrictive covenants for clients such as Great Southern Bank.

Experts break down noncompetes

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Everyone wants the edge, the upper hand, the leg up on their competition. Striving for a competitive advantage makes the business world go round, but as employee’s become more zealous to find that trump card they can put a company’s proprietary information in jeopardy.

Noncompete agreements solve the potential employee spill of secrets, but they can create a host of other problems.

Often misunderstood documents and hard to effectively enforce, these agreements typically restrict employees from transferring to a similar line of work within a certain time frame and region.

“They can be very handy for someone who works in sales,” said Rick Temple with the Law Offices of Rick E. Temple LLC. “They’ve learned about your business, how you market, what you charge and your clients.

“Any employee who could take the information you share with them and use it against you when they leave for a competitive advantage should sign one.”

Salespeople are a popular target, but the scope of noncompete agreements has grown in recent years to include the likes of bankers, welders, TV anchors and health care professionals. Recently released data from the U.S. Department of Treasury found roughly 1 in 5 U.S. workers now are bound by a noncompete agreement.

“We are seeing an increase because of the type of work people do now. Things are different than they were 30 years ago,” said David Mitchell, assistant professor of economics at Missouri State University and the director of the Bureau of Economic Research. “If you worked at the Ford plant screwing in a bulb, you could go to the Chrysler plant and do the same thing, no harm caused.

“Today, things are more specialized, more entrepreneurial. Companies are less likely to develop trade secrets if they can’t keep those secret.”

As the agreements gain prominence, they haven’t gained clarity. Temple said noncompete agreements often are easily confused with nonsolicitation agreements – in the same family, but a different breed altogether.

“People use the terms interchangeably and that just leads to more confusion,” he said.

Collectively called restrictive covenants, the agreements could be up for a revamp as the federal government weighs in.

What’s the difference?
Nonsolicitation agreements are far less restrictive than noncompete agreements. Through a nonsolicitation agreement, an employee simply agrees not to solicit a company’s clients or customers for his own benefit or for the benefit of a competitor after leaving the company.

“With a noncompete, if you want to work in that industry after leaving, you basically have to move,” Temple said. “With nonsolicitation, you can stay here and do the same work as before, just maybe not with the same people.”

Springfield-based Great Southern Bank uses nonsolicitation agreements with any employee who has access to its database of customer information, such as those in a production role, and for everyone at a manager level or above.

“We don’t want to jeopardize our long-standing relationships with our customers, but we also know that data, their data, has a value outside these walls,” said Matt Snyder, vice president of human resources for the bank.

“This isn’t meant to keep people from leaving or living their lives, just to keep them from taking a list of customers when they leave.”

Enforcement
Is everything off limits?

When it comes to noncompete agreements, the answer is usually yes. Nonsolicitation agreements have more leeway. Yes, you can call your old clients. Snyder said that’s a common misconception.

“If you go to XYZ bank to be a loan officer, yes, you can call your customers,” he said. “What you can’t do is use sensitive information you know – like when their loan is up – to further business other than for Great Southern.

“We are not trying to keep you from earning a living.”

Temple said it can be hard to determine if such an agreement has been broken and proof of the violation can be even harder to come by. Despite the high wall to climb, Snyder said the agreements are worth it.

“These are not bullet-proof,” he said. “They aren’t going to stop anyone from doing it, but they give the company some recourse if something happens.”

Overreach?
As part of an executive order signed by President Barack Obama in April 2016, the Treasury Department announced new steps to spur competition in the labor market and accelerate wage growth.

The biggest component? Reining in noncompete agreements.

Federal researchers found states that strictly enforce noncompete agreements have 10 percent lower average wages for middle-aged workers than states that do not, according to a White House fact sheet. The Obama administration put out a call to action for state policymakers to set best practices and enact reforms to reduce the prevalence of noncompete agreements. The call was based on increasing reports of declining U.S. labor market competition and a connection to rising income inequality.

“To me, this seems more like a red herring to try to promote wage equality,” Mitchell said.

“He was trying to placate the base because he campaigned on this. He had to do something.”

The statement from the office of the press secretary reads, “Any factor that limits workers’ choices, restricts their mobility or creates barriers to changing jobs can weaken workers’ bargaining position which may force them to accept lower compensation or inferior working conditions.”

However, Mitchell believes the opposite might be true.

“If you don’t have these agreements in place, it could hurt you in your current job,” he said. “You could be given less responsibility – and subsequently less pay – because you can’t be trusted.”


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