Newland's Business Notes


The "List"

Volume 1 Issue 1-- July/August 1997

We all know about Mafia hit lists, but what about your list? Your list of users, clients customers, patrons, or whatever you call them. If you sell hardware or clothing, lists may not be of particular value, but to many who provide a service (e.g., consulting) or a specialized product (e.g., rare pianos), the list of who needs such services or products can be of great value.

What if Marvin Cornwhacker, your valued assistant and office manager with 10 years of service with your firm, decides to leave and establish a competing business? Furthermore, what if Marvin decides to solicit your best customers?

After all, he has been the contact person and provided most of the services to the customers. Will they follow Marvin? Maybe. Many will remember that Marvin was their principal contact, and they relied on him and got to know him.

Can you, the business owner, prevent Marvin from competing? Yes, but you need to act well before Marvin is ready to leave. The protection you need for your list of customers is a Covenant Not to Compete. In plain English, this is a "promise not to compete."

Well, okay, if there can be such a thing (a promise from Marvin not to bother you if Marvin leaves your employ), why not make the period for life and the area the world? That way, Marvin can only compete on the Moon and after he is dead (not much of a threat). Fair?

Yes, from your perspective, but hardly fair to Marvin and those dependent on him for the next decade. The point is, Covenants Not to Compete must be reasonable in time and area so that Marvin does not become an indentured servant for the rest of his life because he was hired by you.

Despite the note of levity injected into this newsletter, protection of your customer base, your list, can be critical. Do you want the hypothetical Marvin Cornwhacker to "whack" your business should he leave?

Many small and medium-sized businesses give little consideration to what happens if a key employee or associate leaves and decides to compete. If the concerns are addressed before employees are hired or promoted, reasonable agreements can be secured that protect the customer base you worked years to develop. An employee, associate, manager, partner or shareholder can be prohibited from competing for a reasonable period of time (several years) in a reasonable area (the one your business is active in).

Not all businesses need Covenants Not to Compete, but if you need or deserve such protection, you should consider it now and call Newland & Associates. Try waiting until Marvin Cornwhacker is ready to leave and then ask him to sign such a promise not to compete. If you think Marvin will sign an agreement at that time, then you have no problem believing statements like "The check is in the mail" or "I would never lie to you."

Expressed differently, if you have a list, process, or base worthy of protection, then protect it -- while you still can.



Copyright 1997-1999
Published by the law firm of Newland & Associates, PLC
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Call us at (703) 330-0000 for a full range of business law and tax-related services.

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