What’s Better Than a Noncompete? Try These 5 Strategies
Noncompete agreements are famously difficult to get upheld in court. They’re not just unfair to employees—they aren’t that great for business, either.
If it hasn’t happened to you, it’s definitely happened to a studio owner you know: An employee—someone you trusted, confided in, mentored—suddenly announces she’s opening her own studio. Down the block. Before you can say “pas de chat,” she’s absconded with a third of your clientele and modeled every detail of her new business after one she’s found perennially successful—yours!
To protect themselves, many studio owners include a noncompete clause in their employees’ contracts, stipulating that the employee promises not to pursue a similar profession or trade in direct competition with you, the employer. Sounds foolproof, right? Think again. You’ll need to pay hefty legal fees to sue a former instructor over a noncompete, and then it may not even be worth it: Noncompete agreements are famously difficult to get upheld in court.
Even if you don’t live in one of the three states that expressly forbids noncompetes—California, North Dakota and Oklahoma—odds are good that your state recently passed legislation to weaken noncompete agreements. In Maine, Maryland, Oregon, Rhode Island, Illinois and Washington, for example, noncompetes are prohibited for low-wage employees (defined as earning $13–$15 per hour, depending on the state). The reasoning behind this trend? Noncompete agreements, it turns out, can be unfair and needlessly prohibitive. Recent studies show that limiting someone’s job mobility inhibits innovation and entrepreneurship—which then negatively affects industry in general.
Alternatives to Noncompetes
Instead of running your studio from a place of fear (“Who’s about to turn on me and run off with all of my students?”), consider these alternatives to protect your business.
1. Add a nonsolicitation clause.
These restrict your employees from soliciting other employees or customers of your business after they leave your studio. This type of clause, generally viewed as a legitimate effort by a business to protect its goodwill or intangible assets (for example, incredible customer relations, unique management style, reputation as the go-to studio in town), is often upheld by the same courts that strike down noncompetes.
“At our studio, we don’t stop people from starting a competing business, but we try to stop them from contacting our clients,” says lawyer Sean Monson. He works at Salt Lake City law firm Parsons Behle and Latimer and is the husband of studio owner Jana Monson, of Creative Arts Academy in Bountiful, UT. “We pay [faculty] to establish a relationship with our students, so it’s only fair that we have an amount of time to protect our relationship with them.” Monson recommends you set up an agreement that says teachers can’t contact the customers of your studio for one to two years after they leave your business. “I know it costs money to talk to an attorney, but if you do it up front and make sure you have this stuff covered,” he says, “you will save yourself from heartache and headaches in the future.”
2. Use a nondisclosure agreement (NDA).
NDAs prevent your recent employee from disclosing proprietary information (“trade secrets”) about your studio, such as client lists, outstanding contracts and the business’ history. “Have a confidentiality agreement in which employees agree not to share things like marketing strategies, business plans, how much you pay people, client contact information or other confidential information that could be used to your detriment,” Monson says. You can use an NDA to protect your class curriculums, materials, systems, and student and parent policies and procedures.
3. Offer franchises or partnerships.
As teachers gain experience and confidence, it’s natural that their ambitions may grow. Offering franchises or partnerships gives you a chance to groom certain instructors to begin studios of their own, eventually. Sue Sampson-Dalena, who owns The Dance Studio of Fresno in California, views her talented young teachers not as a threat but as an opportunity to expand her own teaching style and grow her business through creative partnerships. “When I see someone who’s really ambitious, who has the type of personality that would be good for a studio owner,” she says, “I talk to them about partnering and growing a location that’s far away from the main studio.”
Sampson-Dalena has helped three former instructors establish their own California studios. These continue to be mutually beneficial arrangements—Sampson-Dalena will invite students from these schools to the master classes she hosts at her own studio, and she’s also offered to take on any advanced students at her own Fresno branch, should they need further training down the line.
4. Keep things fresh.
Rotate teachers among the different levels at your studio, so that your students become attached to the studio itself and not to one particular teacher. Keep yourself in the classroom, too, to remind your clientele that you are more than just the titular head of the studio.
Remember that treating your students well—offering them high-quality dance education in a warm, drama-free setting—is another built-in defense against the allure of new studios and former employees who decide to break out on their own.
5. Foster faculty loyalty.
Offer salary incentives for long-term employees—like a bonus for milestone achievements, such as 5 or 10 years on faculty. Alert your teachers to continuing education opportunities via educational workshops (subsidized, if possible), and keep your instructors’ salaries competitive. Encourage them to set their own rates for any private lessons they give, should they need to make some extra money on the side or fulfill a need to play studio owner for a few hours. Taking care of your faculty is the key to a happy, loyal staff and a healthy business.
Reporting contributed by Haley Hilton. Last updated January 9, 2020.
Rachel Rizzuto writes the Business column for Dance Teacher and is a second-year MFA student at the University of Illinois at Urbana-Champaign.
