ABA Banking Journal - July 2010 - (Page 16)
ABA Community BAnking | empLOymeNt AGReemeNts
“ oncompete” N must-knows
As key players come and go, banks, bankers, and directors all have a stake By Heidi A. GuttAu-Fox
s a director for my family-owned community bank in Iowa and a labor/employment practice attorney, I have seen some banks use noncompete agreements quite effectively. However, others often don’t use them as they might. In this volatile economy and with the many changes confronting banks, including, in many cases, layoffs or terminations of key employees, banks should be taking advantage of this tool critical to protecting their goodwill. Every bank should be evaluating: • Whether they need to implement noncompete agreements with key employees (using enforceable state-specific language). • Whether they must update noncompetes already in place to ensure enforceability. • Whether incoming employees are abiding by noncompetes with their former employers. • Whether outgoing employees are honoring their valid noncompete agreements. On the flip side, individual bankers, CEOs, and other key employees need to know their options before entering such agreements. They need to know how to deal with noncompete agreements during changes in employment. Competitive armor for your bank An enforceable noncompete agreement can benefit your bank in many ways. For example, such agreements are vital to protecting your
bank’s goodwill and preventing unfair competition by key employees who are terminated or leave on their own. Noncompetes protect bank customer relationships, which it paid the departing employee to develop for its benefit. Assuming that the bank has an enforceable agreement, there are several remedies which banks can pursue if a former employee violates an enforceable noncompete agreement. These remedies include: injunctive relief (a court order prohibiting the employee and/or the employee’s new employer from violating the agreement) and monetary relief, in the form of recovery of revenues lost due to the employee’s violation of the noncompete agreement. Importantly, if your bank has been harmed by an employee’s violation of a noncompete agreement, it should act swiftly in pursuing legal action. This ensures that there is no appearance of acquiescence in the former’s employee’s actions. Enforceability is key. Because state laws vary
16 | ABA BANKING JOURNAL | july 2010
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