REAL ISSUES, REAL ANSWERS: To Non-Compete Or Not?

By / 10 months ago

Non-Compete?

The LBM industry at large is wrestling with a shortage of qualified help. With business up at least modestly in many markets, this problem gets amplified. Though there is no sure-fire way for dealers to retain their top people, one option is to require employees to sign non-compete agreements. Readers are sharply divided on the use of non-competes. In fact, fewer than 20% of respondents to our survey use them. Still, arguments can be made both in favor and against, so this month’s Real Issue asks:

This month’s timely question was suggested by an anonymous dealer who wrote: “Our biggest challenge continues to be finding top performing sales reps without a non-compete.” The topic of non-competes has been coming up more and more, so we used this question as a jumping off point, to learn how widespread this challenge is, and how other readers manage it. As we do each month, we emailed a very brief survey to subscribers who’ve opted in to receive our emails. A big thank you to those who took a few minutes to share their insights, experience and opinions with their fellow dealers. If you’d like to participate in future Real Issues surveys, just drop me a note at [email protected], and I’ll make sure you get our next survey.

QUESTION: 1
First, we wanted to gauge how commonly non-compete agreements are used in our industry, so we asked: Does your company require employees to sign non-compete agreements?

As the chart shows, more than three of four respondents’ companies—76%— do not use non-compete agreements at all in their companies. That leaves just 16% who do. Following are several representative comments to this question.

Q:1

Question 1

COMMENTS:
“If you build a culture that values its associates, create a company that is believed to be the employer of choice and is the best at taking care of it’s customers, you don’t need noncompetes.”

“I’ve been asked, and I refuse to sign them.”

“Salespeople only. We ask all employees to sign an agreement not to share confidential or proprietary info.”

“Sales and management only.”


QUESTION: 2
In your view, are non-compete agreements an effective strategy for retaining top people?

“We believe so, but it is untested to date, we just started in this past year.”

“No, in order to retain your top performers you need to have a logical compensation program set up that is easily understood by employees.”

“I do not feel that they are. If the employee is treated well and respected, a non-compete is not needed.”

“Yes, and we will enforce it. We also will not hire sales reps that have a noncompete from their current employers. As a sales rep, your word is your main asset, and if you sign a non-compete and then are willing to violate it then the rep’s integrity is in question.”

“No, non-competes are too easily circumvented.”

“No, the times I have had to sign them it was under duress. Most aren’t worded effectively or aren’t compensated effectively.”

“With a well thought-out and current agreement, they definitely make a key person or sales person think twice about jumping ship. They can also help in the exit negotiations with someone who needs to be terminated.”

“They may possibly be effective, but they’re not an optimum strategy to retain top people.”

“No, it really gives employers a position of power over employee. It’s tough to imagine how a non-compete agreement would help motivate an employee to do a better job.”

“Indentured servitude went out with the emancipation proclamation. A noncompete document should not prevent a person from participating in the field of endeavor with which he was trained or schooled in. If you take care of your sales staff properly, you should not have to worry about loyal employees jumping ship.”

“Yes, but most sales people are reluctant to sign them, and the ones that aren’t usually don’t have as good of a book of business to begin with.”

“If someone doesn’t want to work for you, why would you want them?”

“A non-compete agreement is ‘insurance’ for our employees against a departure(s) creating a detrimental situation for the company, therefore it is a very small portion of retaining top talent. Retaining top talent requires that a company provide an open and honest work environment, clear expectations, recognition and rewards for good performance, plus opportunities to learn and grow.”

“No. They’re too difficult to enforce in a right-to-work state.”

“Yes, we believe that they are effective and important. Considering the amount of time we invest training people in our proven methods, we can’t afford to train people only to have them take a higher paying job with our competition. That’s happened a few times, and it’s something we hope to eliminate from happening again. At the same time, we know that we’ve got to offer competitive pay and benefits, and a pleasant working environment, if we’re to keep our people from looking for greener pastures.”

“No. Top employees don’t need a negative incentive to keep them under your employ.”

“Not in our area. We are a small community and we do have three lumberyards in our area. I work okay with the other two, but they do not work well with each other. The other two yards are multi-yard businesses and I am a onestore yard. Been here 65 years.”

“I am not sure. I have heard that they were unenforceable and actually quit a company that required one. When I changed employers, the company I moved to wanted one and was forcing me to sign it, at the same time they were not giving me all the accounts I brought over, claiming they had people working on them. I ultimately did not sign the agreement and went back to the company I’d left.”

“No. I will not work for someone who would be willing to take away my ability to provide for my family by not allowing me to use my skill set with any employer.”

“We believe that they are. We know that it can be tough to enforce them, but it’s important that employees understand that we’ve a lot invested in them, and that we must protect our investment.”

“It’s really hard to hold an employee to a non-compete and prevent them from working in their field.”

“If compensation, benefits, values, trust, career opportunities and engagement don’t exist, then nothing will retain your talent.”

“No. We only have five employees and have no problems. Two people have been here for 30 years. One person has been here for 26 years. One person has been here for 18 years and the last one has been here for three years. We take care of our employees (treat them like family).”

“It is very situational. For new hire outside sales, as a condition of employment, it can be effective.”

“Absolutely not. If anything, noncompete agreements often discourage highly qualified people from taking the position. The questions of what if it doesn’t work out? What if they change ownership or policies and I feel I need to leave? Let’s face it, most people need to work.”

“Yes, they’re definitely effective. I am 3-0 defending it.”

“No. Even if they sign them, they feel like they are a prisoner.”

“We used to use them, but chose to stop a couple of years ago. If someone wants to leave for a better opportunity, but are legally bound to stay where they don’t want to be…that’s not a healthy situation for the company or the employee. We’ve focused our efforts at being the kind of company people want to work at, and it seems to have made a difference.”

“If they are written with a very narrow scope they can be marginally effective.”

“I don’t think they are effective, but that depends on the state and how they are written. The biggest downside is this: it’s more difficult to attract good talent if people know they will be forced to sign one.”

“No. Top people strive at any opportunity given to them. This industry is tight and you don’t want to burn bridges.”

“My personal experience has led me to believe that non-compete clauses in contracts are un-enforceable. Lawyers defending against such contracts successfully argue that such clauses impede an individuals ‘right to earn a living.’ More often than not, the courts will side with the individual and not the company.”

“Not at all. Non-compete agreements are for companies that expect a larger turnover, and are known for not treating employees professionally. Treat people fair, pay them fair, give them respect and there’s no need for non-compete agreements.”

“Not really. In fact, it may make potential employees think twice before coming to work for our company. In such a competitive market for quality people, the last thing we need is to give candidates a reason not to come to work for us.”

“No, I feel it is a strategy of keeping good talent from coming aboard. Nobody in their right mind would sign a noncompete. Unless they’re guaranteed pay for the amount of non-compete.”

“They help but not to the degree that you would hope.”

“Non-compete agreements can often keep a good employee from accepting a position. If a contract is needed to keep employees, perhaps a bigger problem within the company exists.”

“Officers yes, but the critical issue is whether they would have the ability to take a good portion of your customer base with them if an agreement wasn’t signed and they left.”

“Not really. As an employer, I understand the need for non-compete agreements particularly in my line of business. We have several competitors locally and could easily lose an employee to a competitor. However, I also feel like certain employees might not agree to this type of agreement because there are not many jobs in our area.”

“No. I do not like to start out a relationship thinking it will fail.”

“No. Too many companies use noncompete agreements as handcuffs and then treat employees as property. Our employees are free to move on if they feel they have better opportunity elsewhere or are being mistreated or unappreciated. We rarely lose employees to a direct competitor.”

“Not really, most of them will not hold up in court. You can’t keep someone from making a living and most of the time they will say this is all I have ever done. I have seen employees win in court several times.”

“I don’t think they’re effective, but they do make a point to the candidate that you won’t make it easy for them to leave if they choose to go to a competing company.”

“We don’t use them for retention but to protect the company.”

“We have gone almost full circle on this. We used to endorse employment agreements, trying hard to obtain them. In our view, we could make them enforceable through tough tactics and strong will. However, our current strategy is that if someone does not want to be here, we would rather they left. Much better than a disgruntled employee who would find a way out anyway. We actually use that instead as a promotional tool to attract candidates. We promote that the compensation, work environment, ESOP plan, and other benefits should make this a destination position. Our sales staff averages over 15 years at this location.”

“Probably not. If an employee is looking for a change but is only staying due to a non-compete, he/she is probably not performing like the employee we want.”

“The non-compete is an effective strategy to assure long-term company growth, and keep job hoppers from leaving your business with several good accounts. From this perspective, it protects your loyal ‘top people.’”

“Yes, they’re effective and they’re necessary in today’s environment where top salespeople are in strong demand.”

“No having a good work environment and working with good people and having good pay and benefits will retain good people.”

“No. Cash and other incentives do a better job. If things go bad between a manager and employee, it only hurts the employee in the long run. I see non-competes as selfish by the employer. You should be able to retain your employees without threats, which, essentially, a non-compete is.”

“No, in our opinion they are not morally correct. We have always taken the position that if the competition provides a better product or service at a better value then we need to improve our own. To hold anyone back from opportunity to advance their selves and or their family’s quality of life is a selfish and unjust position.”

“They can make a person think before leaving. They are sometimes hard to enforce, however. Another downside is that the customer base may feel that it is their right to buy from whomever they please, even if you have the legal right to restrict your former employee from selling to them.”

“I would think so. We are considering implementing this. It has burned me in the past.”

“No. If a person is going to leave, they will leave and just wait it out. Meanwhile they they have time to think of ways to ‘get back’ at former employer.”

“No. They instill a sense of being trapped. People may sign them because they need a job but there is simply no way it can be viewed as a positive as a business relationship develops between employees and their employers.”

“I think if a company doesn’t want to lose it’s employees to local competitors then it is up to the company to create an environment where it’s employees don’t want to leave because they are already working at the best place in town.”

“No. Treat people right and they will want to stay.”


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Rick Schumacher

Rick Schumacher is the editor and publisher of LBM Journal, and has more than 24 years experience covering the industry. [email protected]