Two key employees with extremely close ties to the company’s primary customers had, years previously, signed non-competition agreements that are most likely unenforceable. This created an extremely dangerous (and previously unknown) threat to the company’s viability in the event a competitor recruited the employees and advised them of the flaws in their agreements – and the company operates in an industry where employee poaching has become a problem.
Care must be taken not to alert the employees respecting their leverage, and replacement non-competes must be supported by new consideration. We recommend a vesting bonusdeferred compensation system based on company performance criteria for key employees, such as the employees in question. Programs of this type are based on objective criteria, they can sometimes be tax-advantaged, and they can successfully incentivize performance and, crucially, maximize key employee retention, especially in view of the vesting and deferred compensation aspects of the plan. In addition, a program of this type provides consideration for new employment agreements with non-competition and non-solicitation provisions that are more likely to be enforceable. While a key employee’s desire to stay with the company is always best, non-competition and non-solicitation agreements, while not perfect solutions, provide an excellent, additional line of defense. Include a provision permitting the company to disclose these provisions to any prospective employer, which will make it less likely that a prospective employer will be willing to hire an employee who is considering a position with a competitor.