Competition can be cutthroat and if you do not protect your company's physical and intellectual property, you could soon find yourself at a competitive disadvantage. Confidentiality and non-compete agreements are the two standard documents that most firms rely on for protection. While not ironclad, they do create a written understanding between you and your employees regarding acceptable conduct and a legal recourse should there be a breach of faith.
With information readily available to so many of your employees, it is incumbent on you to require many of them to sign confidentiality and non-compete agreements. Research and product development know where your business is headed. Engineering and drafting know your next product release. Accounting and IT know many aspects of your business. Even the receptionist knows your customers if she has sent out the company's newsletter. None, however, know the company, product and customer base like your sales reps, and they are the ones most likely to go to work for the competition when they leave your firm.
If your employees have access to confidential information, you may have to protect yourself and your company against theft of intellectual property by having them sign confidentiality agreements when they are employed. The range of information to safeguard is broad. Proprietary manufacturing procedures, technology and customized software need protection. So do data, formulas, discoveries and trade secrets. Even your customer base needs to be safeguarded from falling into the hands of potential competitors. A customer list that contains detailed client information that took time and many visits to accumulate may legitimately be considered confidential. If your business has an active and visible user group in which customer names are revealed to all, your claim to confidentiality might be weakened.
When sales reps leave your company, they pose an economic threat to you. Therefore, you need to have them sign non-compete agreements when they begin their employment with you. The agreement will carry more weight if it is in force from the first day of employment and a rep might refuse to sign if you wait until he leaves. This document gives you some protection against departing employees taking your customers, hiring away your employees and generally using their knowledge to compete against you. Standard non-compete agreements include a time frame and geographic territory. You cannot prevent ex-employees from earning a living, but you can limit their right to compete against you in your market for a period of time, typically a year. Your agreement should also define the customer profile and products to clarify the limits of the agreement.
Your greatest threat is that former sales reps will call on your customers -- customers they nurtured at your expense. With knowledge of your product's strengths and weaknesses, they will be able to sell against it with greater effect. Before asking your sales reps to sign a confidentiality agreement, consider what knowledge you wish to protect. To be enforceable, the information must be truly confidential. Consider how valuable the information is, how much it cost to develop it and how hard it would be for your competition to duplicate it. You may have a difficult time enforcing this agreement if your secrets are not that confidential. State laws vary about the enforceability of non-compete agreements and you should check with your attorney to see what applies in your state. For example, in California the courts, recognizing that salespersons need to earn a livelihood, and supporting in general the concept of free enterprise, usually won't order salespersons not to call on certain customers, notes Innovative Employee Solutions.
Franchise Law Solutions: You are a Sales Representative, You Signed a Confidentiality and Non-Compete Agreement - Now What?