Investor's Business Daily - September 7, 2007
By Steve Watkins

As chief executives leave jobs, high-ranking executives leave with them. Also leaving can be customers, company secrets and employees.

How to stop that outflow? Put a solid noncompete, nonsolicit or nonrecruit clause in your employment agreements. The trick is making sure those clauses, known as restrictive covenants, are effective without destroying the culture of trust you've tried to build at your firm.

"There is a personal trust cost," Christopher Stief, a Philadelphia-based head of employee defection and trade secrets at law firm Fisher & Phillips, told IBD. "It's like a business prenup. By asking for it, some of the business trust aspect is lost. "

So it's a fine line. But Stief says you still write it.

Make sure you:

Realize it's crucial. Some might question the need to get in writing that an employee won't compete directly, take other employees, or steal clients or company secrets after leaving the job.

But businesses have a legitimate need to protect themselves.

Such agreements are good practice, says Jana Matthews, CEO of the Boulder, Colo.-based executive growth consulting firm Jana Matthews Group.

The pacts set the framework for what can happen upon an employee's exit.

"Otherwise, it can be quite chaotic when anybody leaves," she told IBD.

Negotiate upfront. When you go face to face fast, you're doing so before your employee starts receiving pay and perks. That way you avoid the downside of such conversations.

"If you roll it out to a bunch of people who have been there for 10 years, it can create mayhem in morale," Stief said.

Communicate clearly. That's a key anytime. It especially applies to touchy areas such as what to expect when an employee leaves, Matthews says.

"It's part of the company making itself clear on what it expects," she said. "If you don't make it clear, then it's hard to rag on a person for not meeting your expectations."

Maintain the culture of trust. "I suppose having anything in writing implies that you don't trust people," Matthews said.

That's where it's vital to explain the purpose of the pact.

Let employees know such clauses are designed to pave the way for workers to trust each other and get a free flow of ideas, Stief says.

"If they're going to work as a team, they have to trust that they won't try to poach each other's stuff," Stief said.

Be careful about suing. "It's often more wrenching to decide when to sue someone who left," Stief said. "It affects other employees. You don't want your reputation to be that it's hell to leave."

Consider the impact on the workers who remain on staff, as well as on the firm's reputation throughout the industry.

Still, enforcing the pact can let competitors know they don't have a free shot at your workers and your client base.

The bottom line, said Stief: "It's extraordinarily situation specific."