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How Do You Protect Value In Your Business Through Employee Agreements?

Imagine you and your business have reached the pinnacle.  Profits are growing.  You have a strong management team.  You enjoy a strong competitive advantage.  Employees are happy.  And, imagine that you have decided that retirement looms, in 3-5 years.  What could go wrong? 

 

Of course, nothing is ever quite so perfect and much can go wrong without you even realizing it. For instance:

  1. A key employee leaves.  Not a big deal but then he recruits another employee away.  They form a competitive business and start calling on some of your customers they worked with for you, offering them deep price discounts for the same work;

  2. Another key employee retires.  This employee, a loyal stalwart, would have stuck around solely for you but he had no idea you were considering retiring.  You approach him and try to convince him to stay but he tells you his wife already has their first retirement trip abroad booked; and

  3. Because of these departures, you gather your key managers and tell them of your intent to retire.  The managers immediately become spooked and tell the entire workforce.  It spreads like wildfire.  Resumes are prepared and sent.  Morale craters.

What can you do to prevent this?  An owner can consider appropriate agreements to help protect the value the company has in its employees.  For instance:

  1. An owner can consider non-compete agreements restricting employees from working in a competitive business for a period of time or non-solicit agreements by which the departing employee agrees not to hire away co-workers or steal clients.  In Ohio, these agreements do not necessarily have to be signed at the outset of employment, but they can be unpopular and a negative to employees if the request to sign is not handled thoughtfully.

  2. Likewise, an owner can enter into an employment contract with key employees, keeping that loyal employee in place until the owner’s retirement.

  3. An owner can let loyal employees in on his plans after signing a confidentiality agreement. 

These are just a few examples.  In other words, when things are quiet, this might be the perfect time for an owner to consider protections that would help you ensure that the value that exists in you company will be there when you retire.

 

You can call Henry G. Grendell at 440-462-6503 for a free initial consultation to discuss your business succession plans.

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Kaufman Drozdowski & Grendell, LLC   29525 Chagrin Boulevard, Suite 250, Pepper Pike, Ohio 44122   info@kdglegal.com   440.462.6500