Customer accounts are the lifeblood of your business. Providing great customer service should be a top priority, since it will ensure your customers stay with you. Well, yes—and no.
While no one would argue that great customer service isn’t essential to customer retention, it’s not enough to protect your customer accounts from unscrupulous competitors, former employees or business partners.
You can’t prevent your customers from talking to your competitors, but can limit the people who can try to steal your customers by using restrictive covenants in your agreements with all of your employees. While the specific provisions appropriate for your top salesperson will differ from those applicable to technical or office staff, every employee should be covered by restrictive covenants. In fact, all business contracts— whether among company owners, or between the company and its dealers or independent contractors—should include one or more of these restrictive covenants.
Non-compete clauses prohibit former employees and others from competing with you. They provide the highest level of protection but are the most difficult to enforce. Courts are reluctant to restrict a former employee’s ability to find work to support his family.
Enforceability depends on specific facts, such as the type of employee and the nature of her work, as well as the duration and geographic scope of the covenant. A court probably won’t enforce a non-compete clause against a technician—you likely have no legitimate business interest in restricting his employment—but may enforce a non-compete against a former sales person who could solicit business from your customers.You also can’t stop a former employee from competing in geographic areas where you aren’t operating and the duration of a non-compete must be reasonable.
Non-solicitation clauses prohibit others from soliciting your existing customers. While courts are more likely to enforce these provisions because they specifically protect your customer relationships, enforceability depends on specific facts: did the employee solicit the customer or did the customer approach the employee?
Non-acceptance clauses prohibit employees and business associates from accepting business from your customers and are much more difficult to enforce since they restrict the customer’s right to choose a service provider.
Other contract provisions don’t directly prohibit others from soliciting or accepting business from your customers, but may still help protect your accounts.
Non-disclosure agreements prohibit the disclosure of “trade secrets”—including confidential customer lists. Protected information must not only be secret and provide a competitive advantage, but you must also show you took reasonable steps to protect it from disclosure.
A DIY project it isn’t
While the existence of these covenants alone may dissuade would-be poachers from attacking your customer base, drafting restrictive covenants is not a do-it-yourself project. Courts don’t like restrictive covenants and often look for reasons to avoid them. Restrictive covenants must be properly drafted to protect a legitimate business interest, otherwise they may fail to provide the protections you want and thought you had. An attorney who understands restrictive covenants can advise you on the appropriate provisions and can draft your agreements to be enforceable to the full extent allowable by law.
Yes, lawyers cost money and litigation is a messy and expensive way to protect your accounts. But ask yourself this: Can you afford to ignore the risk of unfair competition? Because the time to discover the effectiveness of well-drafted restrictive covenants should not be after you’ve lost a substantial portion of your RMR.
Eric Pritchard is a partner in Kleinbard Bell & Brecker LLP, Philadelphia, with a national practice in the security and life safety industries. This column does not constitute legal advice; contact an attorney with specific questions.