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As a business owner, at some point you will likely be confronted with the question of how to keep your star performers. It may be your top salesperson or a manager who understands your clients and business processes inside and out. Can you manage the risk if he or she jumps ship?
One proactive way of handling the flight risk is to set up a system of "golden handcuffs." While not literally a lock and key, these are financial incentives with a vesting period of five to 10 years or more. Examples include stock options, putting money away in an annuity, or lump-sum bonus payments the key employee would lose if he or she leaves the company before the vesting period is up. These types of plans are much less likely to fuel resentment than negative restrictions, such as a noncompete agreement.
A noncompete agreement, however, can be a useful tool as well, especially in sales or high-tech positions. These handcuffs are not golden for the employee. Noncompetes restrict the employee’s ability to work for competing companies in similar industries. It is important that you consult an attorney when putting together a noncompete, since the courts will not enforce the agreement unless it is reasonable in terms of time limit and geographic scope. For example, a three-year duration would probably be upheld, but 20 years may be considered too long. Similarly, a nationwide limit may be too broad, but a 50-mile radius from the employee’s current office may be acceptable. Courts also tend to look favorably at noncompete clauses that prevent a former employee from soliciting a company’s clients.
Founder and Principal
Rubino & Liang
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