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Protecting your Business: Non-compete/Non-solicitation Clause?

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Charles Smith
Protecting your Business: Non-compete/Non-solicitation Clause?
on Jan 21, 2011 at 8:36:47 pm

I'm sure this has been broached here before but I thought I'd ask anyway. Has anyone used non-compete/non-solicitation clauses when outsourcing work to 3rd parties? I've experienced situations where I crewed up a project with a long-term client only to discover some crewmembers approaching clients directly in an attempt to get future gigs that I would otherwise be getting.

Let's face it, our economy has caused some in our industry to forgo gentlemen's agreements due to financial duress and lack of work. I don't fault anyone for being enterprising but I do have concerns when it was me who offered employment in the first place. By employment...this could be anything from freelance cam op, to webdesign to graphics, etc. It's really disappointing when someone you know goes behind your back after you brought them an RFQ and laid out project requirements for a gig. Very disheartening.

Any input and thoughtful comment is most welcome.


Chas


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Scott Sheriff
Re: Protecting your Business: Non-compete/Non-solicitation Clause?
on Jan 21, 2011 at 9:56:54 pm

Laws are different everywhere, but here is some food for thought.
You can certainly try and have them sign one if that will make you feel better, but good luck enforcing this if you decide to do it and they steal your client anyway. This would be a lengthy process and it would be hard to prove actual damages. The cost of your legal tab will be pretty high, and there is no guaranty of winning. There is always the risk of a countersuit anytime you sue someone, which you could easily loose. Juries are unpredictable and can sometimes do crazy things.
And even if you win, collecting is a whole other issue. There is usually a seven year window to collect, and a lot of states are 'defendant friendly' and make this process so difficult it is often impossible to get done in the time allowed. This all assumes the person you win a default against has any assets in the first place. Also, in some states these type of contracts are unenforceable, and could put you at risk by asking an employee to sign one.
And of course while this is going on, you will have to pay all the costs up-front, with the risk that you may never recover the damages or costs. No lawyer will take these on a contingency fee basis.
This sort of thing is best left to corporations with a legal dept. that has time on their hands.
In short there isn't anything you can do to stop others from poaching your clients, except offer such good service and rates that your client wouldn't think of going somewhere else.

Scott Sheriff
Director
SST Digital Media
http://www.sstdigitalmedia.com


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Nick Griffin
Re: Protecting your Business: Non-compete/Non-solicitation Clause?
on Jan 21, 2011 at 11:39:42 pm

Most of what Scott says is true, especially the part about different states (in the US) having very different ways of interpreting non-compete laws. From my limited exposure to this, non-competes are best when they don't prevent people from making a living, just attempt to limit what they can do for clients you introduced them to. Also agreements are much stronger when based on actual employment, not just a one-time freelance gig.

Simply put, you can't say "may not work on any other production company within 200 miles of where I do business for a period of two years." That won't hold up and every lawyer knows it won't. "May not work with ( company name -- specifically the company for whom you are employing the person), who was met through work for our company, for a period of 1 year…" is a much stronger and more enforceable contract, especially when executed for each and every engagement.

All well and good considering the points that Scott makes about the difficulties and expense of obtaining a judgement and then trying to collect. Here's where we get to the actual functionality of non-compete agreements: giving the IMPRESSION that you have a strong and enforceable contract because you have required the agreement to be signed. I suspect that very few freelancers have close relationships with a lawyer and I assume, based on past experience, that when most people sign an agreement and are given a copy of what they signed, they are more likely to take it seriously.

We use a "purchase order for services" which has many clauses about dates, deliverables, statement of being an Equal Opportunity Employer and many other clauses. However the biggest and boldest thing on the two page agreement is the non-compete. Is it enforceable? In the 25 years since our lawyer created it, we haven't had to attempt to enforce it... yet.


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Scott Sheriff
Re: Protecting your Business: Non-compete/Non-solicitation Clause?
on Jan 22, 2011 at 2:15:34 am

"From my limited exposure to this, non-competes are best when they don't prevent people from making a living, just attempt to limit what they can do for clients you introduced them to. Also agreements are much stronger when based on actual employment, not just a one-time freelance gig.
"

It pays to be careful how you word these things.
Example: Production company tenant that leased space from a broadcast station. To keep employees from migrating back and forth the two business, the owners placed a six month non-compete clause on their employees, saying you couldn't go to work at the other company without a six month gap.
It got both of them a nice 10K fine from the state labor relations board for violating fair labor practices.
I know this is not the exact situation here, but it shows that you need to be very careful if you are going to dabble in this area. Sometimes there are unintended consequences.

Someone else recommended 'blacklisting' the offenders. Once again, this can often come back to haunt you, depending on how you go about it. You can hire (or not) as you see fit. But as soon as you start discussing individuals work ethics with other employers and business owners you are on a slippery slope. As the 'employer' you almost always have the most to lose in a lawsuit.

Happy clients can't be poached. Keep them happy, and you should need the legalese.

Scott Sheriff
Director
SST Digital Media
http://www.sstdigitalmedia.com


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Mark Suszko
Re: Protecting your Business: Non-compete/Non-solicitation Clause?
on Jan 21, 2011 at 10:18:20 pm

He broke the Pirate Code!
(More of a guideline, really)

Word should get around that this is a guy that poaches from other people's gigs, after being brought in as as subcontractor, and he may move out of town to bug someone else when he runs out of referrals. Poaching clients from people who bring you onto a project is very shady behavior, and there are generally only two excuses: an ignorant kid who doesn't know any better, but can be educated... or an outright scalliwag. The second of those deserves all the bad karma you can steer his way. Word of mouth is surprisingly effective at this.


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grinner hester
Re: Protecting your Business: Non-compete/Non-solicitation Clause?
on Jan 24, 2011 at 7:29:12 pm

Never.
I have found it far more beneficial to treat those I hire well so it aint in em to bail and scavenge while doing it. This, in a nutshell is what's wrong with corporate america. We protect ourselves with paid for paper work rather than maintaining relationships. I'm a freelancer too. I can tell you when someone asks me to sign a non compete, it's my cue to move on to a company that does good business.



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Chas Smith
Re: Protecting your Business: Non-compete/Non-solicitation Clause?
on Jan 25, 2011 at 12:33:49 am

Thanks to all for posting. Great advice on all counts. I've used non-disclosure agreements with freelancers in light of Health Information Patient Privacy Act (HIPPA) so that they understand that they are not to disclose any information regarding a medical story we're working on for a client ( I do a lot of medical media).

This non-disclosure agreement underscores an understanding. While it may be hard to prove/enforce, it does let colleagues know that they could be held for damages if they disclose confidential health information learned during a job as it underscores the situation.

I guess this is what a non-compete/non-solicitation agreement would do, merely underscore a situation and let a would-be poacher/client scalper to think twice about going behind my back to steal a client.
Having something legally enforceable in place is more symbolic but it might help those ethically-challenged folks from acting on their impulses.


Thanks again,

Chas


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Patrick Ortman
Re: Protecting your Business: Non-compete/Non-solicitation Clause?
on Jan 25, 2011 at 8:36:40 pm

I'm all in agreement about NDAs, I think that's smart- we do some healthcare work, too, plus products about to be launched, etc. Not to mention private internal stuff like financials.

In my first post-college deal, I was told by the HR director at the company I was interviewing with that 1) yes, I'd have to sign a noncompete and 2) they knew that such documents were largely bogus.

With my company, I tend to agree with Grinner.

---------------------
http://www.patrickortman.com
Web and Video Design


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