Eric Pritchard is a partner in Kleinbard Bell & Brecker LLP, Philadelphia. The firm focuses on acquisition and succession strategies.
This article originally appeared in the July 2012 issue of SD&I magazine
Picture this scene: Someone shows up at your subscriber’s residence wearing an official-looking uniform announcing that he is supposed to install new equipment (or re-program existing equipment) because (pick your choice) (a) the current security provider (that’s you!) is no longer in business or (b) a new company merged with the current security provider (nice if you knew about the merger) or (c) the current service provider sold the resident’s account to the new provider or (d) all of the above. Whatever the story, the representative from the new provider eventually manages to re-program your subscriber’s panel to transmit signals to a new monitoring facility and somehow secures the resident’s signature on a new subscriber services agreement.
Sound like fiction? It’s not. It’s called subscriber “poaching” and, over my years in the industry, I’ve seen it again and again–in disputes (that often end up in litigation).
While you can’t prevent people from trying to steal your customers, you can protect your subscriber base from those in the business of wrongfully converting customer accounts with these practical methods. (The word “employee” below also applies to outside sales reps or subcontractors.)
Use restrictive covenants with your employees and contractors. Restrictive covenants work on a number of levels. Just having them in place means many employees will think twice about leaving you to compete or solicit your accounts. Make sure you include provisions governing confidentiality, non-competition, non-solicitation and non-disparagement. Include the right to obtain an injunction to enforce these provisions. (An injunction is a court order requiring someone to do or not do something and can be essential to protecting your account base.) You need to satisfy a number of technical legal requirements to obtain an injunction. Use knowledgeable counsel to cover these and other important items in the agreement.
Include a non-compete. While enforcing a non-compete can be difficult, a well-drafted non-compete, limited in time and scope, often is enforceable under the laws of many states. Don’t try to keep your former employees from a competing for two or three years. Limit the time period to one year—or even six months. Generally speaking, the shorter the duration, the more likely it is that the restriction will be enforced. A year to six months is still a long time to be out of work for someone who needs to put bread on the table.
Comply with applicable state employment laws. The laws of different states vary. Can you enforce an employment related restrictive covenant entered into after you offer an employee a job? In many states, the promise of continued employment alone is not sufficient to support enforcement of employment-related restrictive covenants. Are the restrictions narrowly tailored to meet your legitimate business interests? Failure to comply with these and other important issues could leave you without protection. Check with counsel to insure your document can be enforced in court.
A non-solicit differs from a non-compete—make sure you have one. A non-compete means the former employee cannot compete in a line of business within a specific area for a specific time. A non-solicit means the former employee is free to compete—they just can’t solicit business from your accounts. Generally speaking, a non-solicit is more likely to be enforced than a non-compete. Your non-solicit should apply not just to the subscriber but to the premises where the subscriber resides. Require the employee or contractor to refer any inquiries they receive for alarm business to you and to do so promptly and in a courteous manner.
Act promptly to protect your rights. An injunction is the most important weapon you have to protect your client base. It isn’t easy to obtain an injunction (often referred to as “extraordinary relief”) and it can be an expensive process (perhaps not as expensive as letting someone steal your customers, though). If you don’t act promptly, you may lose your right to protection later on.
The current industry vernacular refers to poaching as “slamming.” To me, that’s a term from the long-distance industry referring to unscrupulous practices of sales reps slamming the phone on a customer following their verbal agreement to switch long distance carriers. That’s not quite what we’re talking about here and I don’t like the reference. Frankly, much of this is plain old stealing customers. Let’s call it what it is.
Eric Pritchard is a partner in Kleinbard Bell & Brecker LLP, Philadelphia. This column does not constitute legal advice; contact an attorney who specializes in the industry with specific questions.