No one wants to invest their time and money on something only to have the competition take advantage of it. Does anyone use non-disclosure or non-compete agreements in your contracts to protect your business?
Non-disclosure agreements say that a person is contractually bound to maintain confidentiality about your business and not share private information with anyone outside of the business. Non-compete agreements say that a person cannot work for or start up a competing business for a specified period of time after leaving your company.
If you train a team member, you don’t want them running off to use that training for your competitor or opening their own hostel and becoming your competitor themselves. By including both types of agreements in their work contract you could conceivably prevent your staff from sharing confidential information about your operations, client lists, business practices, upcoming changes to services or products, marketing plans, etc. Because hostels frequently succeed or fail due to our personal interactions with guests, even our methods of engaging our guests could be considered intellectual property. How much time have you spent developing a method that works for your hostel? How easy would it be for a competitor to mimic that method simply by headhunting your well-trained team?
These agreements are treated differently in different jurisdictions – sometimes upheld and sometimes ignored completely depending on the local laws. If you are using these agreements or considering their use, you should consult a lawyer to find out if they are effective in your area.
In most areas the law says an employee has to be offered additional compensation if their contract limits their future job prospects in the same trade after leaving your company. This compensation could be paid during their employment with you or during the time period when they cannot work for someone else, as specified by the contract. Would it be worth it for you to pay more to keep your own team from competing against you?
Real Estate Contracts
I was recently speaking with a hostel owner in Montenegro who had to change locations because the landlord decided to kick him out and open his own hostel in the same property after renovations were completed at the renter’s expense.
Obviously there were several problems with the rental agreement if this was able to happen. It got me thinking though - would it be wise (or even possible) to include a non-compete clause in a rental contract stating that the landlord could not use the property for another hostel for a period of time after terminating the contract?
Does anyone have a condition like this in your rental contract?
If anyone is interested, here are some do-it-yourself templates for non-compete and non-disclosure agreements from a US law firm.
If any of you are using agreements like these to protect your business, what terms did you set? For example:
Confidential information: What type of information is specified as confidential? (Any information that is publicly available, common knowledge, freely available through other sources, etc. cannot be considered as confidential)
Gographic location: Is a former employee not permitted to work in a 10km radius? In the same city? Same country?
Time period: Are they restricted from working for a competitor for six months? One year? Longer?
Which competitors: Do you list specific competitors that a former employee cannot work for? Do you state that they can’t open their own hostel? Are they prohibited from working for “any competing business?”
Consequences: What action will be taken if the employee violates the agreement? Who will pay the legal fees if action has to be taken?
If you have used these agreements in the past, did you ever have to take action against a former employee? Did the agreement hold up in court?