Non-compete clauses: are they worth the paper they’re written on?

Non-compete clauses: are they worth the paper they’re written on?

Non-compete clauses: are they worth the paper they’re written on?   Advisors thinking of making a clean break likely face fewer legal issues than imagined when taking clients to their new firm. Here’s why.
 
Let’s assume you’re planning a move to another company in six months hence.
 
You stumble around trying to figure out how you’re going to beat that tiny piece of paper you signed when you first started working with your existing firm that precludes you from competing within a certain geographic distance of your office should you choose to leave and/or from soliciting clients with accounts at your previous company.
 
Ottawa lawyer Harold Geller dismisses many of these clauses in employment contracts as unreasonable and generally unenforceable. A specific example: if you work in Toronto and your contract prohibits you from working within 250 kilometres of the GTA, Geller states, “the court will say that’s ridiculous… It’s quite common that clauses like these are stuck down by the court as meaningless.” 
 
That doesn’t mean you should run roughshod over your employment contract. Any attempt to alienate your existing firm will likely result in hard feelings between the two of you and ultimately could end up costing you thousands of dollars in legal fees, etc.
 
This next part is critical.
 
Prior to making a decision Geller recommends you visit a lawyer who can give you an opinion on your current employment contract. “Advisors are notorious for not getting legal advice for moves in advance… I can tell you that almost every advisor who’s called me has no knowledge of what the true contract terms are.”
 
So, you get to a lawyer and he tells you that your current firm’s non-compete clause doesn’t hold water. That doesn’t mean you’re living on easy street. You’ve still got to move your clients’ accounts to the new firm once you’ve made the leap.
 
The only problem with this scenario is that your contract with your current company specifically precludes you from taking client information with you.
 
Now what?
 
Your best plan is to provide your clients with a copy of their file prior to leaving, wait for the notice period to expire, and then make your move, hopefully leaving on good terms.
2 Comments
  • Ken MacCoy, CHS 2014-11-26 2:31:21 PM
    A word to the wise: While a non-compete may be struck down by the courts; a non-solicit (i.e for 2 years) may come back to haunt you. also, if you don't have a non-compete, but have a fiduciary duty or obligation to your former company, it is imperative to seek legal advice. Three points to remember: (1) It is easy & inexpensive to launch a law-suit, but could be costly to defend; (2) Your former company likely has deeper financial pockets than you; and (3) always, always seek legal advice before making a move.
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  • Will Ashworth 2014-12-22 3:47:01 PM
    Hi Ken,

    Great points, all of them. Most importantly, advisors should seek legal advice before making any decision to move. Absolutely essential.
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