Small Business Saturday – What You Need to Know About Non-Compete Agreements for Your Employees

A small business that has invested substantial resources in developing a product or a customer base could be devastated if its employees then go to work for a competitor down the street or set up their own competing business. A noncompetition agreement is an important tool that could protect your business from former employees who could otherwise reveal or use your sensitive information, trade secrets, strategies, or customer information for the benefit of a competitor. These agreements are not favored by the courts, however, because they place a restriction on workers’ ability to freely earn a living (and a few states refuse to enforce them at all). If you choose to require a non-compete agreement for employees, it is important to keep the following factors in mind.

1) Your business must have a legitimate, good faith reason for the non-compete agreement. As mentioned above, if your business has trade secrets or other information that is a valuable asset needing protection, a non-compete agreement is more likely to be enforced by a court. On the contrary, if an employee does not have access to valuable or sensitive information, a non-compete agreement is likely to be seen as merely punishment for leaving your business. In those circumstances, it is unlikely to be enforceable. Be careful about which employees you ask to sign non-compete agreements. A receptionist at the front desk is less likely to have confidential business information than a key manager, so a non-compete agreement precluding the receptionist from working for a competitor probably would not be considered a justifiable restriction.

2) The non-compete agreement must be reasonable. Different states have varying standards about what restrictions will be considered “reasonable.” What is seen as reasonable will also vary based on the type of job the employee held, as well as the type of business. You should err on the side of the minimum duration needed to protect your business. A lifetime restriction is almost never enforceable, but a one-year restriction may be deemed reasonable, for example, for an employee who has had access to your customer information. The non-compete agreement also should only cover the geographic region in which your business operates. A restriction covering the entire state will be considered unreasonable if your business only provides services or goods in one county. In addition, the non-compete agreement must not restrict an employee from performing a completely different job for a competitor. If your salesperson takes a job as an interior designer for a competitor, he or she is less likely to use “insider” information gained while employed by your company against you in the new position because the duties performed will be quite different.

3) Provide a benefit to the employee to compensate for the restriction. If you require a new employee to sign a non-compete agreement as a condition for hiring that employee, the employee is receiving the benefit of a job with your business. However, if you require someone who is already employed by your company to sign a non-compete agreement, it is important to provide an additional benefit, such as a raise, to increase the likelihood that the agreement will be enforceable.

4) Weigh the pros and cons. Although non-compete agreements do protect your business’s trade secrets, sensitive information, customers and more from being disclosed to a competing business, they may also discourage some potential employees from accepting a job with you or prompt existing employees to leave rather than sign the agreement. Along with the concerns about their enforceability, this is another reason to impose only the minimum restrictions needed to protect your business.

Give Us a Call
A non-competition agreement should be customized and carefully drafted to meet the needs of your particular business. We can help you determine which restrictions are legitimate and reasonable to decrease its vulnerability to a legal challenge. Give us a call at (228) 202-2490 to set up a meeting to discuss this and any other employment-related concerns.

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Business Owners Need Estate Plan and a Succession Plan

Business owners get so caught up in working in their business, that they don’t take the time to consider their future—and that of the business—when sometime in the future they’ll want to retire. Many business owners insist they’ll never retire, but that time does eventually come. The question The Gardner News article asks of business owners is this: “Do you have a business succession strategy?”

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Announcing a New Blog Feature: Small Business Saturday

We are proud to announce a new weekly blog post dedicated to small business owners. These posts will address issues such as hiring employees, business succession, the relationship between estate planning and business planning, protecting your personal assets from business creditors….and much more!

Stay tuned for this new series starting this Saturday, July 13.

Let us know what you would like us to blog about in the comments.

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Self Employed People Get to Retire Too–If they Plan Well

People who work for companies have access to perks like 401(k) plans, with automatic deductions that let them put retirement savings on autopilot. However, when you work for yourself, it’s all up to you, says Zing! in the aptly-titled article “Saving for Retirement When You’re Self-Employed? It Takes Planning and Commitment.” If you have the discipline and self-motivation to run a business, you should be able to apply those skills to your retirement.

Here are some tips for self-employed people who are concerned with building their retirement savings.

Embrace a budget. One of the biggest challenges is income that fluctuates. It’s hard to save when one month has you earning $10,000 and $3,000 the next month. You’ll need to create a budget and stick with it, including budgeting a percentage of your income for retirement. While you’re creating a budget, set goals for short- and long-term objectives to keep your budgeting focused.

A budget should include necessary expenses for each month, including mortgage or rent, car loans and credit card payments. Include groceries, transportation, and health care costs. Some self-employed people pay for some items like transportation or entertainment out of their business accounts. If you do that, just work with one budget, so you can measure spending. There is no need to split things out for yourself. You should then look at discretionary items like vacations, entertainment, gym memberships, clothing and things that are not basic necessities.

Now see what’s left at the end of the month. If there’s no regular stream of money going into retirement savings because there’s not enough after spending, you may need to make some changes.

Create an item in your expense budget for retirement savings. Make it automatic. Set a fixed amount of your income, by dollar amount or percentage of monthly income, and put it away every month for your retirement. This takes discipline at first and then becomes a habit. Once you see how the account grows, you’ll be more inclined to continue.

Talk with your accountant about the best savings vehicle for you. Some self-employed individuals use a “solo” 401(k) account, known as a SEP or Self-Employed 401(k). Designed for employers who have no employees other than themselves (or their spouses), it offers the same benefits as traditional 401(k)s. In 2019, you can contribute up to $19,000 when contributing as an employee, or up to $24,500 if you are 50 and older. As an employer, you can contribute up to 25% of your compensation – not counting catch-up contributions for those 50 and older, you can go as high as $55,000 in 2019.

Another factor if you are self-employed is your estate plan. Entrepreneurs are often so busy working on their business, that they forget about the legal side of their personal lives. You need a will, power of attorney, health care power of attorney and, depending on your business and life situation, a succession plan.

Reference: Zing! (Jan. 7, 2019) “Saving for Retirement When You’re Self-Employed? It Takes Planning and Commitment”

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