CFOs who oversee the HR function have to consider noncompete agreements from the employer perspective as well, since they are involved in applying them and deciding whether to take legal action against employees who violate them.
Drapkin says she fields more questions from job candidates about Predix’s noncompete provision than any other issue. “Candidates ask, ‘Can I change the noncompete clause?’ and ‘Will you hold me to it?’” she says. “But we’re an intellectual-property-driven company. It’s something we don’t budge on.” Predix bans employees from working with direct competitors for two years. “I try to assure people that we will be reasonable when the time comes for them to go to another company.”
Such “reasonableness” and specificity are the keys to a well-drafted noncompete. The more broadly an agreement defines the forbidden competitive activity, or the wider the geographic scope, or the longer the agreement remains in force, the less likely a court is to uphold it. “A good rule of thumb is to make [noncompetes] as specific as possible,” advises Pomfret.
“Companies cannot simply restrict competition, they can only protect legitimate business interests such as trade secrets or other confidential information,” says Doyle. “Don’t ask for the moon.” She urges companies to identify their most important competitors and consider naming them in the noncompete. “There would be no reason I couldn’t work for Neiman Marcus,” says Tehle of Dollar General. “If you said I couldn’t work for any other retailer, that might not be fair.”
Another consideration in drafting a noncompete is that states vary widely in their treatment of the agreements. While some states uphold or reject noncompetes on an all-or-nothing basis, tossing them if any part of the agreement is too vague, others will enforce some provisions but not others. A third group of states will rewrite overly broad contracts to make them reasonable in the eyes of the court. Still others don’t recognize noncompetes at all (see “Across State Lines” at the end of this article).
Companies must demonstrate their commitment to enforcing noncompete agreements and safeguarding their valuable information in other ways. “Even if you have a perfectly crafted noncompete, you could still lose out in court if you don’t have other ways of protecting your information,” such as locks on file cabinets and restricted access to data rooms, says Pomfret. “The court could rule that you haven’t done anything to show you’re protecting the information, so there isn’t a legitimate protectable interest.” Similarly, if a company only selectively enforces noncompete agreements, it could lose credibility with the courts.
As important as it is for companies to take these agreements seriously, noncompetes can be negotiated after the fact. “In the majority of situations, people will come to some sort of an accord on what the prior employer will allow the employee to do,” says Pomfret. Still, he warns, “the more senior the person is in the organization, the more likely the company will be rigorous in its enforcement.”
Kate O’Sullivan is staff writer at CFO.
|Across State Lines
How different state courts approach noncompete agreements.
|Anti-noncompete states||Prohibit noncompetes except in special circumstances||California, North Dakota|
|All-or-nothing states||Reject agreements if any part is overly broad or vague||Georgia, Virginia|
|Blue-pencil states||Uphold certain provisions and reject those deemed unlawful||Arizona, Connecticut, Pennsylvania|
|Reformation states||Rewrite agreements to meet the court’s standards||Massachusetts, New York|
|Source: Mark Pomfret, Kirkpatrick & Lockhart Nicholson Graham LLP|
CFOs on the Move
Bellsouth Corp. CFO Ronald Dykes is retiring at year-end. He will be succeeded by Patrick Shannon, SVP of financeÂÂÂ . British Airways will start the new year with a new CFO. Keith Williams will take the job as John Rishton leaves to become finance chief at grocer Ahold NVÂÂÂ . Kiran Patel has left his post as CFO at semiconductor-maker Solectron Corp. to join Intuit Inc. in the same roleÂÂÂ . Richard Nye has been placed on administrative leave at California Water Service Group as he faces civil charges relating to his activities at Cornerstone Propane Partners LP. Corporate counsel John Tootle has been named acting CFOÂÂÂ . Rosemarie Mecca is the new CFO at Laureate Education Inc., the for-profit education companyÂÂÂ . Thomas Tippl, formerly head of investor relations at Procter & Gamble, will head up the finance department at entertainment distributor Activision IncÂÂÂ . Time Warner Cable has promoted Landel Hobbs from finance chief to COO.