The Role of Non Compete Agreements in Gym Membership Retention
Some people think of non-compete agreements as the domain of high-powered companies trying to safeguard their trade secrets. However, non-competes have value for many different kinds of businesses, including fitness centers -- especially when it comes to the issue of preventing employees from leaving ... and from taking your members with them. Here’s a closer look at what all fitness business owners should know about non-compete agreements.
What is a Noncompete Agreement?
Non-compete agreements -- sometimes referred to as "restrictive covenants" -- are designed to prevent employees from leaving a company to work for a rival business or to start a similar company of their own using information acquired on the job. Typically, non-compete agreements ban workers from seeking employment with competitor companies for a certain period of time and/or within a geographic area.
The use of non-compete agreements has been common over the past 25 years. In fact, nearly 40 percent of Americans have signed non-compete agreements. As business and intellectual property attorney Russell Beck told PBS,
“Over the course of the past 20 years or so, trade secrets have become an increasingly important aspect of a company’s business, and couple that with the fact that they are now easier to move. So if you think about recipes or production processes, they are all recorded by electronic means, and they are very easy now to move out of a company. You have a workforce that is increasingly mobile and increasingly changing jobs, and over 50 percent of them admit to taking information when they leave, so companies are very concerned about information moving when the employee moves, and so I think it’s because of that, that you’ve seen an increase in non-competes.”
While trade secrets may be the first thing to come to mind, the issue of non-competes is applicable to much more. (In fact, the maintenance of trade secrets is typically covered by a Non-Disclosure Agreement.) Continued Beck,
“Anything can be a trade secret as long as it’s information that provides some value to the company and that the company takes reasonable measures to protect. Recipes for cookies, profit margins, customer lists, all business information that provides a company the ability to be more effective in the marketplace.”
Noncompetes and Health Clubs
Fitness businesses are not exempt from the threat of the increasingly mobile and job-changing workforce. Consider a recent $40 million lawsuit filed by Equinox against three former personal trainers and their new company. The gym chain’s allegation? That the ex-employees had stolen trade secrets to start their own competing business.
The takeaway? If you’re a fitness center owner trying to protect your intellectual property, investment, staff, and business practices, a non-compete agreement may be a vital measure. As Epstein Becker Green non-competes group co-chair Peter Steinmeyer told Club Industry,
“A club may have invested a substantial amount to build up a customer base and goodwill with its employees. A properly drafted restrictive covenant is a tool that can help do that."
However, experts also caution that noncompetes can be tricky as they may also deter prospective employees from joining your team. Conn Maciel Carey PLLC partner Kara Maciel told Club Industry,
"If clubs want to attract new trainers, they may lose out by asking for a non-compete. That's the biggest resistance I've heard from employees."
Factor in that non-competes vary from state to state and can be difficult to enforce, and the potential challenges of non-compete agreements grow. Because of this, experts suggest owners carefully evaluate whether they have legitimate business interests in establishing non-competes, whether the terms are reasonable, and whether they would ultimately hold up in court.
As an alternative to noncompetes, experts also recommend looking into confidentiality and non-solicitation agreements -- which can be viewed as less of a threat to the future livelihood of employees, should they decide to leave. Continued Maciel,
“There are a lot of provisions you can include that are less onerous than an outright ban on employment.”
Additionally, experts also iterate the benefits of providing plenty of opportunities for in-house employee growth as anti-attrition fitness business advice. In offering diversified responsibilities, you help your staff feel more supported in reaching their full potential and therefore more inclined to stay.
As the health club industry continues to boom, well-executed fitness business non-compete agreements can offer critical protection for fitness business owners when it comes to securing their investments in both employee and member retention. However, there’s also much more involved than merely asking your employees to sign a piece of paper. That is why it’s critical to enlist the help of a lawyer when drafting and implementing a non-compete policy at your health club.
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