Business Ethics - Non Compete Clause?

ChicoGuy

I recently experienced a situation which caused me to consider ethical standards which other business owners/tradespeople adhere to. A long-time employee of mine (never gave me any reason to doubt his quality or character) recently obtained his contractor's license. We had an understanding that he would occasionally seek out side jobs on his own, but would also keep working with me as legitimate sub.

I learned that his first remodeling contract was with a past client of mine. I was too busy (with him employed on my jobs!) to schedule this client's bath remodel in the time frame they desired. They called him. He bid it, and has been building it after-hours and weekends.

I informed him that I felt this was an ethical mistake on his part. That these clients were the result of my time, resources and development of goodwill. He didn't seem to see it that way. I informed him that most remodeling businesses I know of would drop a sub like a bad habit if they found out that they were taking future jobs away from them. I told him the only way I could comfortably sub him out in the future was if he signed a "non-compete clause".

Has any one else here ever experienced such? Do you think I am being too petty? Has anyone ever considered having their clients sign a clause to prevent them from trying to undercut you on future jobs?

Appreciate all comments!
Andy

allrightthen

if he got this job while working for you then he should of said something like i know your busy and these people want this project started ASAP do you mind if i do the work. I would be upset to

Mike Finley

If he has the energy to work after hours and weekends he probably needs to be working harder at his day job.

Chris Johnson

If he was/is a sub then you don't need a non-compete clause, quit subbing to him with no re-course.

If he is an employee fire him, but don't expect a non compete clause to hold up to well in court...many have tried and failed...e.g. I have heard of people beating the non compete clause with the judges stating it is the only way this person knows how to make a living.

As for the client signing something...hell this is free enterprise and in all our free rights ones is to chose who we hire and when, it is not dictated to us.

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Chris

genecarp

HE IS untrusworthy, if that was one of my guys, he better hope my ex client has plenty of work, because he will need it.

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Floordude

So you pay your employee, as an employee, with workmans comp, and FICA, or is it straight pay contract labor?? You know if your hiring a subcontractor, your basically hiring your competition to do things you don't have the manpower to do.

After his 40 a week for you, he is legally and ethically able to forgo his own business.

No compete clauses are for selling established businesses, PERIOD!! It is a smoke & mirrors tactic, that holds no water for employment.

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Aframe

Chicoguy,
You said you were to busy to do it, at all or just when they wanted to do it?
Do you know if they would have waited for you if he wasn't able to do it on his own?

He should have run it by you. If you were not going to do the job at all and if he is doing it on "his time" I don't really see a problem with it.

I can see if he said he wanted to take time away from working for you so he could do his own job that would be a whole new ballgame.

If he wants to work for your previous clients and keep working for you, see if there is a way for him to bring those projects in house. Giving him some extra responsibilities, let him share the risks from estimate to completion.

Depending on the employee/sub category, referral/ finders fee or some other compensation might be in order.
Times are tough for a lot of people, he may see it your way when he's out there completly on his own.

threaderman

In the past I have bein asked to sign no-compete clauses.I think it's a fairly common practice in the Plumbing industry,or was at one time for sure.

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Forry

Probably would have been a completely different scenario if he'd asked you about it before hand. I'm betting youy would have either been ok with him taking the job, or you would have worked something out to your mutual benefit. If you like him and like working with him, get him to agree to run these things by you if only out of respect so you can figure out how to make things work. Guess it comes down to respect if you ask me.

ChicoGuy

Forry,
You are right on with your comments. That's what it really boils down to for me. It could have been a completely different scenario if he had run it by me first.

What blows me away is that after working for me for five years straight, his first contract on his own is with a former client, and that he still feels there is nothing wrong in taking such work as long as the client contacts him (as opposed to him contacting my clients "looking" for work).

My personal feeling is that regardless of whether one is an hourly employee, or a sub, you don't bite the hand that feeds you. You should secure your own jobs through your own hard work and investments, rather than riding on the coat tails of others.

This is an interpersonal issue probably best suited for other forums, but I just needed to hear that other contractors would feel the same. Thanks everyone for your comments.

AZpainter

We have run into something of the sort. A worker of ours decided that he felt he could make more money contracting on his own. This may be true in a sense but what he does not realize is that now he will pay all taxes, liability insurance, bonds, advertising, travel and job supplies. Where we live (AZ) he will now, being self employed, pay 15.4% in taxes. I know he does not know that.

Sure he may get the word of mouth chain of business now but that eventually runs out and then he will REALLY learn what it means to have a business.

And I agree that the 'no-contest' clause is a steaming heap. I would probably cut your guy loose. If he feels he is profiting more from doing his own thing, it will more than likely escalate regardless of how much you voice your discontent.

AtlanticWBConst

I've never considered having clients sign a non-competition clause, simply because I've never heard of that happening. The closest thing to that, involves a current project.
Example (in our contract addendum area):
The Client and Property Owner agree to make no agreements in regards to this proposal/ contract with any trades-person, subcontractor, or ***XX Construction employee - outside the scope of this work contract without the written consent of ***XX Construction

You could have your worker, even acting in the form of a subcontractor, sign a non-competition clause with you. It is very common for workers to go out on their own, espeically after they obtain their own license and cert.

Outside of that, it is really something that is a gray area of ethics. One in 100 Home Owners will pull something like that. The rest have enough decency, that they won't put your workers/subs....and you, into such a difficult situation, just to get what they want. In essence, the HO is being Unethical. It doesn't mean the worker/or sub, should follow suite, without asking you.

Is it correct to sneak-in to do what he did? Ethically = NO.
Your guy was deliberately sneaky. The ethically correct thing would have been for him to approach you and ask if it was ok to do that particular job, since the Home Owner was technically your customer (once a client, always YOUR potential client for future work, unless things end badly on a job). That Home Owner was a person that your worker had met (come in contact with) because he had worked on a job for you, at their house.

2 years ago, I was doing a job for a roofing contractor friend of mine. He has his GC license, and he tries to get any additional construction related work he can get, and sub it out. We were installing skylights and doing some other work for the H.O. - The Home Owner approached me and asked if we do additions, and could we quote a price for him. I said: Yes we do, but he'd have to talk to my buddy about that. We'd be more than happy to be a part of the project. He said: Well, if I do that, I'd end up paying more. I said: no, my buddy and I trade off work all the time. He often does my roofing, and I do his other work...
Immediately, I told my buddy. Why? Because it was his job, and I felt it was the ethically correct thing to do. The HO asked several more times, during the course of our job. I said the same thing.

Now, here it is 2 years later. I could easily stop by this guy's home, and follow up on things. Even if I did, I would be compelled to ask my buddy for his "permission".
Why? Because I feel it is the correct and respectful thing to do.
Will I stop by and look the HO up?
No....knowing my buddy, he is sensitive about these areas, so, I wouldn't go there.
Once HIS client, always HIS potential future client.

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- Build Well -

Floordude

The client of yours gave you first choice. You declined.

Your help, is trying to step up in the world. He knows you turned down the work, but feels he is able to take on the task, you refused to do, and not effect his ability to do anything you ask of him.

Where is the beef??? They gave you first chance and now your mad that you see you could have or should have accommodated them.

It sounds like your jealous, now that you know who got the job. No offense, but that is the way it reads to me.

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Canaan

I understand where Floordude is coming from, but without knowing your personal motivations, Chico, I'll just give my opinion.

We have a Great plumber at our shop. He's a young guy who, before he worked with us, amassed a large clientele through his dad, who is a local plumber. He is very open about his own clients, and he makes no apologies for not bringing them to us. Conversely, we make no apologies for making a profit off of his labor.

I think the difference in ethics here is that our plumber has been very open about his other clients, while your employee seems to have gone behind your back with a client that was once yours. I understand that you turned the job down initially, but I would have at least expected a conversation about his intent.

Now you have to decide how much of an asset he is to your company. If you can still make a profit on his employment, and you're keeping busy anyway, I think I'd just let this one pass. Hopefully if you two are respectful of each other he will see that (in my opinion) what he did wasn't on the level, but that you don't want to stand in his way of making a proper living, as long as it is not hurting your business.

ChicoGuy

In response to FloorDude's comments, jealousy has no role in any of this for me. Feeling betrayed and disrespected does. My employee is also my neighbor. My family and I have been good to he and his. I have gone extra lengths to ensure that he was always gainfully employed, and gave him nice gifts and bonuses.

There is more to the story than originally posted. I provided the bulk of the details mainly to see how other contractor's would have responded, and whether or not a "non-compete clause" was relevant or not.

This whole episode began when my employee reluctantly informed me (he slipped up a bit, and I prodded him into giving more info) that he had been speaking to my past clients. He said they were anxious to complete their remodel, and he responded by saying that he told them he was only able to perform their plumbing rough-in. I expressed my disappointment that he consulted with them at all - before running it by me. He reiterated that he would only do the rough-in and was leaving it to my clients to figure out what to do afterwards. We ended the conversation by me stating that I thought he was wrong in meeting with them without talking to me first, and that if he was willing to work after-hours to make extra money he should have run the scenario by me so that I could have contracted the job out with him performing the work.

I later called my client (who happens to be a landscape contractor) to ask how much of the work my employee (who now has a GC license) has contracted to perform. He informed it was for the entire job (roughly $12K), not just the rough-in. This was AFTER my employee said he only felt comfortable doing the rough-in.

The bulk of the responses I am receiving reflect that I am not being petty, and one should not "bite the hand that feeds you". That's an ethical path that seems natural to me. If the opportunity came from a contractor with whom you have very little, or no "business history" with - that's one thing. But when it plays out between two people who have worked side by side for five years straight, with never a problem before, it really stinks.

Take no offense in this FloorDude, but I have to ask, have you ever agreed to take work from an associates' past client, in the manner in which my employee did? I'm just curious, due to your response to my posting?

artisanstone

I wonder if you were very clear with this employee about this when he first started wanting to go out on his own. I started taking my own jobs when I was 18, and my former employer was very clear with me about this. I did not completely understand all the ramifications of competition, but I did as he wished, out of respect for him. I don't think you can expect this young buck to completely "get" this. Try to patiently explain your point of view, then lay down the law. If you get your point across, the two of you may have a mutually beneficial relationship in the future. If you fail, then you've both just lost an asset.

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BKFranks

Maybe I don't understand the problem, but didn't you say you were too busy? I would think it's great that someone you know was able to get the job. As long as the guy is still showing up and doing quality work for you, I don't see the reason for the complaint.

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Bob Kovacs

Let's get something out on the table here- in the first post, you say he's a "legitimate sub", and in a later post you say he's "your employee"- well, which one is it? If you're taking out taxes, etc., and paying him with a payroll check, then you've got a right to be upset. If he's truly a sub, with his own business licenses and a 1099, you've got no right whatsoever to be upset- in fact, you should be thrilled that he's getting work on his own, since it's keeping you from getting nailed for having a captured sub. Give him enough grief over this and he might happen to pick up the phone and let the IRS know what you've been doing.

Besides- if you were too busy to do the work, what's the big deal???

Jason Whipple

Regardless of how you pay your workers and on topic of the no compete clause; yes, I would have him sign one. He's already shown you that he's got no problem soliciting your customers for work. He most likely won't be working for you forever right? I mean, he just got his GC license! People who want to be gainfully employed don't normally do that, only people who want to be self employed do.

So what happens when he gets enough work to go out on his own; without your help? Do you think he won't let your customers know as he goes out the door? He will, and he'll be handing out business cards and speeches about how to save by cutting out the middle man on his way.

Protect yourself and your investment in time by having him sign an agreement. Have a lawyer draft the document so nothing is missed and so that you can use it again in the future when you need subs that do the same type of work you do. Make sure there is a cash penalty included in the clause, what ever the limits of the law will accept.

I'm having one done right now. Seems like any carpenters I sub out to can't help themselves from handing out business cards to my clients. Although I've never lost a customer to this back door activity, I'm not going to wait until it happens either.

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Jason E Whipple, General Manager
Historic House Restoration, Cincinnati, Ohio
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Footfall

First and foremost I want to say, I UNDERSTAND where you are coming from and how you feel, I really do. Please just let me share my opinion.
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"Don't bite the hand who feeds you"

How do you know if you are the hand or the feeder?

You may be getting the jobs, but he's doing the work. Is he feeding you with money you otherwise wouldn't make? Could this be based on perspective?

Now as far as your specific situation goes:
"I was too busy (with him employed on my jobs!) to schedule this client's bath remodel in the time frame they desired."

Without looking at who they called next, this right here states that your business could not handle the work load in normal business operation. Who they call next is not your concern! You could have done the work yourself after hours if you really felt that it was necessary, but you chose not to. Another contractor chose to work overtime/after hours to accommodate their request.

Now this does get a little weird since he is a sub for you, however, has this interfered with the work that he has contracted with you? Is he using the time he's promised to work for you as a sub for his own job? Without more information, it seems like the answer might be no.

Lying, on the other hand, is something else. If he outright lied to ME about the size of the contract, I would be thinking twice about hiring him for any more jobs since I would no longer trust his word. I would have to make sure that the deal for the whole contract wasn't made between when I talked to him, and when I talked to the client.
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