Mistake #9: 

Failure to Set Up Reasonable Restrictive Covenants.

1520367Sid’s business was booming.  Over the past three years, he had developed a strong base of clients and prospects.  Through effective branding and marketing campaigns, he had garnered a growing niche for his company’s products.

The demand was so great that Sid could no longer act as the company’s sole salesman.  He needed to devote more time to training new employees and to fine tuning the development of the company’s new products.  Sid was pleased when Jennifer, an experienced and affable sales rep, responded to his Help Wanted Ad, and was thrilled when she accepted a sales position with the company.

Sid introduced Jennifer to his existing clients. She quickly won them over with her quick wit and her attention to detail.  Sales grew at a steady pace.

Jennifer began working the list of prospects, and began winning new business.  Company profits soared to record highs.  At Jennifer’s suggestion, Sid hired two additional sales reps – Wendell and Terri – to help Jennifer work the expanding client base. Sid divided the client list into three territories and assigned a rep to each territory.  As the most experienced (and most effective) sales rep, Jennifer received the largest territory.

Sid continued to monitor the ongoing sales events, but the demands of a growing company made it increasingly more difficult for him to regularly visit clients. Ultimately, he promoted Jennifer to Director of Sales, and turned over all responsibilities for sales to her.

Sid was stunned when Jennifer turned in her notice of resignation.  Two weeks later, the local newspaper announced that she had joined his primary competitor as the Vice President of Sales.  The next day, Wendell and Terri resigned their positions and joined Jennifer.  Business plummeted as customers followed the three defectors.  Sid scrambled to try to keep the business, but the damage was done. Sid questioned whether he could keep the business open.

How to Avoid Mistake #9

Protect your business by using carefully drafted restrictive covenants.  Non-solicitation agreements prevent former employees from contacting your customers and staff after leaving your company.  Confidentiality agreements protect your trade secrets and other confidential information.  Courts will enforce limited non-compete agreements if they are no broader than is necessary to protect your legitimate business interests.

Properly drafted and enacted restrictive covenants help you minimize the possibility of unfair competition when key employees leave your business.

If you have further business related questions, please call our office at 480-733-6800 and ask to speak with Scott Gibson. Scott, an AV rated attorney, handles employment law, trade secrets and restrictive covenants, commercial litigation and intellectual property. He brings with him 27 years of experience and a unique combination of compassion, patience, intelligence, listening ability and commitment.