The NonCompete

A topic that's been getting a lot of attention on the Affiliate discussion boards lately is the NonCompete Contract. 

With some centres now supporting 6 or more CrossFit boxes, it's no surprise that Affiliates are considering the possibility of Coaches moving around from Box to Box. A bit of diffusion with Coaches, just as with athletes, is to be expected: no one is a perfect match for everyone. The big fear, though, seems to be that the cost of developing a Coach - which takes years and a TON of money - can be tossed aside when the Coach leaves to start her OWN Affiliate, usually taking clients with her.

How can we know the correct way to write a NonCompete contract, preventing a staff member from going out on their own and drawing staff members, without a lot of trial and error? We can put a contract on the firing line and try to defend it.

In our case, we're currently defending AGAINST a NonCompete contract from another business. We're going to win. More importantly, we're going to learn where the law works to uphold a NonCompete contract...and where it won't.

When a court is considering the validity of a NonCompete contract, it has to answer three questions:

1.  Does the company have a proprietary interest that's entitled to protection? Have you developed specific knowledge that can't be gained easily, or without much effort, by the common person? Are others doing similar things in your area already?

2. Are the temporal or spatial restrictions too broad? After all, while you have the right to protect your business, you can't stop another person from making a living forever, or remove them from the industry....

3. Is a non-solicitation clause more appropriate? Is it enough to protect your business to stop the exiting employee from recruiting your CURRENT clientele?

In most States and Provinces, judges can't alter a NonCompete contract; if it's invalid for ANY of the above reasons, the whole contract is null. For instance, if your staff member has signed a contract blocking her from opening a new business at any time in the next 5 years within 100 miles...the restrictions are too broad. A five-year absence from the industry would make her current skills too outdated upon re-entry, effectively removing her from the field.

Some States have given Judges the power to amend NonCompete contracts to make them more appropriate. For instance, if #3 (a non-solicitation clause) would be more appropriate, the Judge can alter the NonCompete on the spot to become a non-solicitation contract. Check your local laws.

One recent NonCompete that WAS upheld in our industry: Sanchez. vs. Rising Sun Martial Arts. Notice how narrow the scope of the contract was written: 10 miles, for 1 year. That's reasonable (in this case, Sanchez opened his 'new' martial arts centre half a block away from his former employer, less than 24 hours after leaving.) Sanchez was also paid to sign the contract; as with any deal, there has to be remuneration on both sides.

A few other considerations:

1. It's still the inherent duty of a staff member to be a good employee. If they've clearly broken the confidence of their employer (Sanchez had a setup ready to go before he notified his boss that he was leaving, and likely groomed his students to follow) the Judge won't have much sympathy for them.

2. The delivery of the NonCompete is important. If the staff member doesn't fully understand the agreement at time of signing - if, for instance, they believe it's just part of their liability coverage, or training agreement - then it's likely to be invalidated. 

3. The NonCompete should be delivered at time of contract signing...not as a requirement to CONTINUE a job that's already occurring. It's pretty easy to argue that a NonCompete was signed under duress. Similarly, handing out NonCompete Contracts to a group is sketchy because of the covert social pressure to sign.

Consider a nonsolicitation contract: it's much easier to uphold; it keeps the door open for more positive future relations between your Box and others; and you get what you want, which is to keep your Family intact.

A final note: whenever the issue is discussed, there's always the argument that "if you were better, people wouldn't leave with departing Coaches." This is a red herring. To run a successful Box - that is, to create the best possible experience for everyone who attends - you simply can't be everything to everyone. Similarly, it's impossible for your clients - or your staff - to appreciate the risks and costs necessarily undertaken to develop each Coach, and you can't expect empathy. Though YOU may wonder, "How could Shirley ever leave, after all I've been through for her?!??!" their perspective will be different. Protect yourself AND your clients. A great gym requires a solid, stable back office.

Comments

[Eric McKinley]

I'm a new affiliate owner and as part of the affiliate agreement I had to sign, the following clause was contained:

(e) In no event shall Affiliate require its trainers or employees to execute
noncompetition agreements, provided that an Affiliate may protect confidential client
information

According to this clause I couldn't have an employee sign a non-compete and still be in compliance with my affiliate agreement.

[Chris Cooper]

Hey Eric! It appears to be moot anyway. In our case, when we signed our Affiliate Agreement, we'd just been threatened with a noncompete that our first Trainer had signed elsewhere. We got some gratis advice to ignore the threat, and it never materialized. After a few great conversations with our attorney this week, I'm realizing that a nonsolicitation clause is better for everyone concerned ANYWAY, and more likely to be enforced. I can see why HQ included that clause in the Affiliate contract - it's the nature of the industry, sadly - and they wouldn't want to slow the expansion of CrossFit through the legal limitation of trainer progression into ownership. Another great way of being fair to everyone, that came from Lisbeth Darsh, was this agreement: she pays for Certs for trainers, but they're required to reimburse her if they quit. Great stuff.