Employee Retention in Smaller Businesses: How to Attract, Keep Employees

January 8, 2005

By Shawn A. Kachmar, published in Business in Savannah.

All businesses, large or small, routinely confront recruiting and retention problems.

Such problems are magnified in small or medium-sized businesses where a star employee’s departure can have a significant impact on the bottom-line. Most small and medium-sized businesses cannot afford the highest pay or best benefits package in their industry, but are still competing with market giants for talent.

So what do you do as a small or medium-sized business owner to attract and keep talent?

You use a variety of legal tools and business incentives to make it difficult for employees to leave. But more importantly, you turn your business into a place where people want to work.

Put people first

Money alone does not keep and attract talent.

Smaller businesses can use their size to their advantage, better able to listen to and communicate with employees than bureaucratic monoliths.

What can a smaller employer provide that a larger competitor may not be able to because of its size?

Fundamentally, businesses can help employees develop their unique career development goals.

Use flex-time for employees who want to go to their children’s activities during the work day or who want to further their own education. Find a way to publicly recognize every employee for some accomplishment during the year.

Recognize birthdays. Say thank you. Provide free drinks or bagels and donuts at work. Take staff to lunch. Create and cultivate open lines of communication.

Communicate the company’s short and long-term goals to employees, as well as the strategy for achieving those goals and the employee’s role in that strategy. Employees who feel “part of the family” will have a stronger incentive to work harder and stay longer.

Make it difficult to leave

Few events hurt a smaller business more than the departure of a talented employee for a bigger salary at a larger competitor after the employer has invested time and money relocating and training the employee. Although carrots typically work better than sticks, employers also have a variety of legal tools to help with employee retention.

To protect your investment, consider using non-competition agreements that prohibit a former employee from competing against you in a defined geographical area for a specific period of time following the separation of employment.

Although non-competition agreements are effective when properly drafted, Georgia courts strictly construe such agreements because Georgia public policy favors business competition and people’s right to work.

If a court finds that a non-competition provision is overbroad, the provision is unenforceable. Accordingly, such non-competition agreements must be carefully drafted and should prohibit competition only in the geographic area where the employee actually worked, or with customers with whom the employee actually had contact while employed by your company.

Although similar to non-competition agreements, non-solicitation agreements are more narrowly focused on contacts with customers. Such agreements prohibit ex-employees from soliciting your customers for business for a specific period of time, typically two to three years.

Many non-solicitation provisions also properly prohibit former employees from soliciting current employees to “jump ship” to a competitor.

A non-solicitation provision should be narrowly drafted to prohibit ex-employees from contacting any customers with whom they had contact during their employment with your company, or about whom they had confidential information as a result of their employment.

Broader provisions prohibiting contact with any customer, regardless of whether the employee had contact with the customer, may not be valid.

Finally, an employer can use reimbursement agreements to recoup some or all of its investment in new employees.

The most common reimbursement agreements focus on relocation and training expenses. A typical relocation reimbursement agreement requires the employee to pay back some or all of any relocation expenses if the employee leaves too quickly.

Likewise, a typical training reimbursement agreement requires the employee to pay back some or all of any training or education expenses if the employee leaves within a certain period of time.

Although some agreements require full reimbursement if the employee leaves with six months or a year, most require reimbursement on a graduated scale: 100 percent if the employee leaves within six months, 75 percent if within nine months, 50 percent if within a year, and 25 percent if within 15 months.

While legal options such as non-competition, non-solicitation and reimbursement agreements are certainly available to employers to aid with employee retention, employers should first focus on creating an environment where employees want to stay, and are not merely biding their time until their reimbursement agreement expires and something better comes along.

A comfortable, flexible, open workplace will attract employees willing to forego larger salaries or more comprehensive benefits in exchange for a great work environment.

Such an environment will foster happy employees motivated to work hard for the company, directly improving the bottom line.

Shawn A. Kachmar is a partner in the Savannah office of HunterMaclean, practicing in the areas of employment law, employee benefits and business litigation. He can be reached at 912-236-0261 or skachmar@huntermaclean.com.

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