Noncompete mistakeAn interview with a successful CEO offers business owners a chance to learn from a costly mistake involving employment agreements. This mistake could have doomed her company before it became a billion-dollar business.

Specifically, Therese Tucker is the CEO of BlackLine, which provides automated finance and accounting software. She also founded BlackLine and brought it public. It was recently valued in excess of $1.5 billion. So Ms. Tucker knows a thing or two (times multiples of 10) for what it takes to run a successful company. But equally important is what can be learned from the mistakes Ms. Tucker’s business made in its early start-up days.

In this regard, Ms. Tucker recently gave an interview to Russ Banham, a contributing writer to Chief Executive. Excerpts of the interview appear in Mr. Banam’s article, Biggest Mistake: No Employee Non-Compete Clause, Says BlackLine CEO Therese Tucker. Ms. Tucker explained how a mistake gave rise to a competitor:

I learned a really valuable lesson about the critical importance of legally sound contracts with employees, one that I will never forget … In California, you’re not allowed to ask an employee to sign a non-compete contract, which are banned. The mistake we made was not having specific clauses in our employment contracts regarding confidentiality and reusability. Regrettably, an employee in our sales group had access to our source code in her laptop. She outsourced the code to India, created a competing product, and sold it.

Fortunately for Ms. Tucker and her business, the mistake was not fatal to BlackLine. But luckily for BlackLine, Ms. Tucker learned from this issue and re-focused on having employment contracts suitable for a national company. More specifically, BlackLine implemented agreements tailored to be enforceable with employees living in multiple locations across the U.S.

The Take-Away – Enforcing Employment Agreements Depend upon State Law.

For companies with national or international operations, having a “one-size-fits-all” employment or non-compete agreement runs the same risks BlackLine faced; it may not be enforceable where and when your company needs it most. For these reasons, in running a business it is essential to evaluate where your employees live and your business needs in relation to non-compete and similar post-employment provisions.

If you are responsible for your company, here are some questions to consider:

  1. Should your company use non-compete or non-solicitation provisions to protect its business?
  2. If so, what employees should be subject to post-employment restrictions?
  3. Can these restrictions comply with the law of one state or are individuals employed as residents of other states? If so, what does the law say about enforcing employment agreements in the employee’s home-state?

If you are an individual, similar attention must be given to what the employment agreements you are asked to sign:

  1. Specifically, what law applies to your employment agreement?
  2. If that law differs from where you live, is it more or less favorable to you?
  3. If it is less favorable, are you sufficiently compensated for giving up potential legal remedies or protections you would otherwise be entitled to?

For more information about this article or employment or non-compete agreements, contact employment attorney Jason Shinn. Since 2001, Mr. Shinn has focused on Michigan non-compete law, as well as non-compete disputes involving other state’s non-compete laws,  including California, North Carolina, Florida, Washington, Ohio, Delaware, New York, and Pennsylvania.