With Non-Compete Clauses: VARs And Employees Beware!

However, they all agree that employee hiring agreements can become a battleground, as shown in recent lawsuits between two Microsoft large account resellers (LARs).

Softchoice, a Toronto-based solution provider with a large presence across the U.S., on June 24 filed lawsuits in Minnesota and Virginia against rival En Pointe Technologies, and some of its employees, alleging that the Los Angeles-based company improperly hired certain Softchoice personnel.

Solution providers should be aware that hiring and non-compete agreements can become hotbeds of dispute, as seen in the lawsuit, unless carefully constructed, said Hope Hayes, president of Alliance Technology Group, a Hanover, Md.-based solution provider. She said it is essential to not only have your employees sign good non-compete agreements, but to also carefully scrutinize potential employees' previous non-compete agreements.

Hayes said that she comes down hard on anyone she knows who violates non-compete agreements in relation to work done with Alliance Technology.

"A company paid you money to develop business for them," she said. "It's very simple. If that was your job, that was your job. You don't own that business. That was your job."

Hayes said she once fired a sales rep who, as he was being walked out the door, got a box for his personal effects, but then started grabbing customer files. "He said he developed the business," she said. "I said, but I paid you."

When Alliance Technology hires a new employee, Hayes said she always asks to see any non-compete agreements, and then looks for ways to work around them.

"We hired one tech with a non-compete," she said. "I couldn't ask what companies he was covered by the non-compete. That could be considered inside information, because it would be telling us who handled IT for those customers. So we had a rule that, if we asked him to go on a call and#91;to a customer covered by the non-competeand#93;, he would say, 'Sorry, I can't go on that one,' and we'd say, 'OK.'"

Alliance Technology once hired a sales rep, and Hayes contacted the owner of the company where that rep previously worked. "That company told us he was in this and that customers," she said. "I said, 'Are you aware that we are also in those companies?' He said yes. So we didn't send that rep to those customers."

Hayes said that employees who flip business from one solution provider to another should pay their employer back for all the business they developd over the years.

"It's just wrong," she said. "I just wonder how they would feel if they hired someone, paid them six-digit figures, and then watched them leave with the business."

Hayes said employees who violate agreements ultimately shoot themselves in the foot. "No one else will ever hire them," she said. "Who will ever trust them?"

If employees get away with such business practices, it could have a profound impact on the way solution providers do business and engage employees, Hayes said.

"No one will ever hire again," she said. "Everyone will be on a 1099 (a way of reporting the income of independent contractors or freelancers, not employees). They'll get no benefits. They'll be partnerships, not employees. This will hurt a lot of people, especially new people coming into the industry who need the training. We'll have more attorneys on staff than technicians."

John Zammett, president of HorizonTek, a Huntington, N.Y.-based solution provider, said that in his area, there's no way he would hire someone who has a non-compete from a former employer.

Zammett said he recently wanted to hire a friend of five or six years as an engineer, but when told by that friend that he was under a non-compete, Zammett declined to hire him. "However, a couple weeks later, his former employer went belly-up, so we got him," he said.

Unlike many in the business, HorizonTek does not ask its employees to sign a non-compete. Zammett said he prefers instead to trust new hires while making sure that if they do something to hurt his company that he will make sure others know about it.

He cited the example of a sales rep who he later discovered was "double-dipping and triple-dipping," as in working for another solution provider in California and another local company while working for HorizonTek.

"I fired him and got him black-listed," Zammett said. "He went 18 months without a job. One storage vendor I worked with who wanted to hire him called me about him, and I told them if they hired him I would never buy products from them again. They hired him, and I cut our relationship."

HorizonTek, on the other hand, does not hire people from competitors. "I'm not a raider," Zammett said. "I'd rather have home-grown talent."

Many states are right-to-work states, and enforcing non-competes is difficult or impossible, solution providers said.

One of those states is Texas, where enforcing a non-compete is too much work, said Joe Vaught, executive vice president and COO of PCPC Direct, a Houston-based solution provider.

"You go to court and spend too much money," Vaught said. "It's not worth the effort. Around here, you know who you're dealing with, and do everything with a handshake. A handshake down here is still a pretty good bond."

Joe Kadlec, vice president and senior partner at Consiliant Technologies, an Irvine, Calif.-based solution provider, said his is also a right-to-work state. But even so, it is important to have employees sign contracts that they cannot reveal confidential business information they receive from others, or take such information when they leave, he said.

"We've never had to go after anyone," Kadlec said. "When people leave, we remind them of the contract they signed."

Another way to prevent issues with non-competes is to keep the business all in the family.

That is what Condor Storage does, said Jeanne Wilson, president of the Sedona, Ariz.-based storage solution provider.

"We're a family-run business," Wilson said. "When people leave, you may have invested a lot in them for training. But it's kind of hard for someone else to recruit someone who is a co-owner with me and related to me."