Building Competitive Protection Into Your Contracts

If you aren’t concerned about competition then you are either the biggest fish in town with the best offer or you’re shortsighted. For those who are concerned about competition (likely all of you), it’s particularly irritating when that competition comes from someone you have introduced to the subscriber. I am referring to someone who is supposed to service the subscriber on your behalf and not for the employee’s or subcontractor’s benefit. Similar considerations come into play when you purchase alarm subscriber accounts and contracts; you don’t expect the seller to start soliciting those accounts. But it could and sometimes does, in fact, happen.

There are tools to guard against such competition. One such tool is a properly drafted nonsolicitation clause that may be in an employment agreement, independent contractor agreement or asset purchase agreement. The nonsolicitation provision would vary depending on the phrasing and circumstance, but the gist of the provision remains the same. It requires that someone, identified in that agreement, not solicit someone else, whether that someone else be a subscriber or an employee or referral source.

A nonsolicitation provision in the employment contract and the subcontractor agreement would serve to deter or prevent your employee, or your subcontractor, from soliciting your subscriber for business. A narrowly written nonsolicitation provision is not enough because it addresses only the solicitation by the employee or subcontractor. It may not cover the subscriber initiating the contact, and it may not cover the employee or subcontractor from actually providing any services to the subcontractor. 

A broader provision would be a restrictive covenant or noncompete. A noncompete provision may encompass nonsolicitation but may also prohibit much more. It could include communicating, soliciting and servicing, or even the ability for someone to operate in the security industry in a defined geographic area. The enforcement of these provisions depends on the jurisdiction, the sensibility of the judge, the relationship with you (the employer), with the person you are restricting (employee, subcontractor, seller), the scope in territory and duration in length of time.

These criteria and more will be used to balance the need for you, the employer, to protect your business interests against the needs of the public to maintain unrestricted freedom in doing business and the needs of the restricted person to earn a livelihood. However, these provisions are also regularly upheld, as most jurisdictions recognize the parties’ right to contract away the ability to avail themselves of certain benefits, if they have affirmatively and knowingly waived such rights in a valid contract they have benefitted from.

And where a provision may be interpreted as overreaching, oftentimes that provision would be recalibrated by a judge to an acceptable parameter. For example, if your restrictive covenant restricts a former employee from operating a security business within 25 miles of your existing location, that geographic range may be interpreted as unreasonable under the circumstances and considerations mentioned above. However, a judge may determine that 10 miles is appropriate and uphold that geographic range.

The noncompete provisions are not foolproof. Think of it as just another term in a contract that may be breached. It should have a chilling effect on someone considering breaching the provision, but ultimately the consequences will depend upon your willingness to enforce the provision against the breaching party. Often the cost of enforcement is just not worth it. Once you are determined to enforce the provision you should seek advice from an attorney specifically experienced in noncompetition litigation. Some states limit or prohibit enforcement of noncompete provisions, which should be considered before engaging in costly litigation.


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About the Author


Security Sales & Integration’s “Legal Briefing” columnist Ken Kirschenbaum has been a recognized counsel to the alarm industry for 35 years and is principal of Kirschenbaum & Kirschenbaum, P.C. His team of attorneys, which includes daughter Jennifer, specialize in transactional, defense litigation, regulatory compliance and collection matters.

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