Hiring is difficult, but don’t give up on restrictive covenants
Sheehan Phinney Bass & Green
United States: Hiring is tough, but don’t give up on restrictive covenants
To print this article, simply register or connect to Mondaq.com.
Hiring. This is by far the most significant challenge facing almost any business as we move away from a pandemic economy. Companies struggle to recruit and retain talent in almost every occupation, field and position.
To increase their visibility and the chances of landing this top candidate, many companies have started offering generous incentives to new hires. Full relocation packages, housing, extra vacations, and garish signing bonuses are now normal. From a legal standpoint, incentive programs like these are generally acceptable, although every company should have a qualified employment and compensation lawyer to review the fine print to avoid unintended consequences. Through the vineyard, I’ve heard that other companies have been more aggressive in the hiring process by agreeing to waive key hiring clauses such as non-competition and non-solicitation. This practice, like new home buyers who forgo all inspections, gives me a bit of a headache.
Companies usually only have one chance to create a binding employment agreement, and that is at the time of hiring. New Hampshire law, for example, requires that new hire non-competitions be disclosed “before the employee accepts a job offer.” This means that a company cannot temporarily âsuspendâ non-competitions during a tight labor market and then reintroduce them later. Neighboring states have similar restrictions that make the introduction of non-competition during employment cumbersome or even impossible.
For other types of engagements, such as non-solicitations, intellectual property agreements, and arbitration agreements, to name a few, matters of consideration may arise when they are not disclosed. before hiring. Employment contracts typically rely on the new employment opportunity as the contract’s consideration (i.e. the negotiated exchange necessary to support a binding contract). The dynamics change when these contracts are introduced in the workplace. In this situation, âcontinuous employmentâ should be considered an adequate consideration; otherwise, the company will have to offer something more, such as a bonus or additional power take-off to support the contract.
The introduction of a mid-employment contract also raises questions of coercion. It is one thing to say that a restrictive covenant is required to join a business; it is another thing to say that covenant acquiescence is necessary in order for someone to keep their job. Presentation and power imbalance can create problems when the company tries to enforce the commitment.
Finally, consistency is important when it comes to restrictive covenants. Some restrictive covenants are only enforceable to protect the goodwill and property rights of a business. What message does a company send by demanding non-competition for years not to demand them when the job market tightens? Are commitments really necessary to protect a company’s goodwill? In other words, pressing pause can compromise the application of past and future non-competitions.
Hiring is difficult at the moment, there is no doubt about it. But instituting a temporary break on hiring clauses to land the perfect candidate can be more difficult than it is worth and can lead to long-term problems for the company.
There may be legitimate reasons for waiving certain employment covenants altogether, as there is no one-size-fits-all approach to employee mobility that works for all businesses. These decisions, however, should not be taken immediately and should involve a qualified employment and compensation lawyer.
This article was originally published by the Portsmouth Chamber of Commerce and can be viewed here, July 14, 2021.
The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.
POPULAR ARTICLES ON: US Employment & HR