Non-compete agreements are an often misunderstood topic in our industry…

So, Nate and Daniel brought Stephanie Maris on the show to do a little “myth-busting.”

The result was a nuanced episode that both music school owners AND music teachers need to hear.

Turns out… our industry would do better overall (for both schools and teachers) if we abandoned the non-compete in favor of a different type of legal arrangement.

This would protect schools from their students being stolen…

And would help teachers who want to go out on their own.

Furthermore, we get into how schools can communicate this compassionately to their staff… so that they don’t have to 

Finally, Stephanie gives school owners practical advice on the most cost-effective way to enforce your legal agreement in the event that a teacher DOES steal students.

Click below to listen to the episode.

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Transcript

Click here to download the transcript.

Here’s what we cover in the episode:

• What actually is a non-compete and how does it affect my studio?
• But it’s just a music school… how far can a non-compete agreement actually go?
• Can a teacher who leaves my music school get hired at another local music school?
• The 3 “reasonable criterion” your music school needs in a non-compete agreement
• What’s a non-solicitation agreement? Should I be using that in my music school instead?
• How can I protect against families reaching out to a teacher who has left my studio?
• The language to use when communicating a non-compete/non-solicitation agreement from employer to employee
• How much would hiring an attorney to help with all this cost me??
• What’s the first step I should take when trying to enforce a non-compete?

If you’d like to learn more about Stephanie or have questions, she can be reached here.

Disclaimer: Nothing in this podcast should be construed as giving anyone specific legal advice and are intended for informational purposes only.  This informational material is not intended, and must not be taken, as legal advice on any particular set of facts or circumstances. You need to contact a lawyer licensed in your jurisdiction for advice on specific legal issues.

WRITTEN TRANSCRIPT

Introduction to Stephanie Maris

Daniel P  00:05

Hey, welcome back to another episode of 7-Figure Music School.

Today we have a special guest, Stephanie Maris, who is an attorney that I’ve worked with in the past. 

Today we’re going to ask the question, ‘What’s a realistic non-compete that a music school can use with their teachers on their staff?’ 

Of course, we’re going to dive into this a little bit deeper. Before we answer that question, though, I’d love to give a little bit of an introduction there. [Stephanie], tell us a little bit about yourself and background and maybe that’s a good way to get started here.

Stephanie M 00:37

Thanks, Daniel. I appreciate that. As Daniel mentioned, my name is Stephanie Maris. I’m an attorney in Indianapolis, Indiana. I work at Cohen Garelick and Glazier, and I mainly work with entrepreneurs and business owners to help them grow their business through different business models, mainly licensing and franchising. Part of what that entails is also working with them and protecting their intellectual property, which can include trademarks, copyrights, and their business itself – the trade secrets. So I’m happy to be here and looking forward to providing some information.

What actually is a non-compete and how does it affect my studio?

Daniel P  01:14

Very, very cool. And yeah, those specialties that you mentioned are exactly why we initially got connected. 

And speaking of those specialties, I think a good question to start out with involves a topic that I see quite a bit in conversation with smaller schools, midsize schools, and larger schools – a non-compete agreement. 

At least on a monthly basis, I see this argument happening on Facebook, in the various music school support groups – someone comes in, they don’t use the search function. They put this question there – 

“Hey, I’m in a non-compete agreement. I’m a teacher, and my employer is saying that I can’t teach within 20 miles of the school that I’ve been teaching in the last two years now that I want to go independent.” 

And then there’s the flip side of the coin, the music school, where they don’t want a teacher leaving the school and taking students with them, you know, students that they work very hard to market for and enroll at their school. 

They want to sign those teachers to a non-compete and prevent them from stealing students. But in some cases, those schools don’t even want them working in the local area. So I actually want to dive really deep and see what’s true. What’s legal, as usual. 

Everybody has their degree from the University of Facebook. And in this particular case, it’s around this non-compete thing.

So that’s the question I have for you today, Stephanie. Based on what I’ve heard so far, I know this is a little bit open-ended. Maybe you could give us the broad strokes of what you know a properly drafted non-compete can actually do or not do.

Stephanie M  03:17

Well, I think to start off, it would be really helpful if I provide a definition of non-compete, because people use that term very broadly – and there are actually different types of restrictive covenants. You mentioned two different types in your question there. 

One is a non-compete in the traditional sense, where somebody is prohibited from competing within a defined geographic area, which is usually centered around, in this case, what would be the music studio… 

Or there are non-solicitation provisions. That would be similar to preventing somebody from providing services or soliciting clients that they worked with while they were employed at the studio. 

People typically lump all this together under the term non-compete when in reality, they’re restrictive covenants. And so, some NDAs (non-disclosure agreements) and non-compete agreements will have a geographic restriction. Some will have a non-solicitation restriction and many will have both. So it’s important to distinguish between those and to look through those or look through your contract to see what it says. In terms of, you know, determining the enforceability or the properness – to use your words, Daniel, it is important to consult an attorney.

Non-competes and restrictive covenants are not federally regulated, and they’re actually different on a state by state basis. So, for example, myself, I’m licensed in Indiana. From an Indiana perspective, a non-compete has to be reasonable within three elements: the scope of that non-compete, the timeframe of the non-compete (how long it is), and the geographic location, if there is one. 

Now, these elements are similar across the country, but they’re not defined the same way, in some instances, and some states have different types of restrictions. And then some states go even further and actually prohibit these types of restrictions in agreements for employees, and they’re only available for the sale of a business. 

It is important that you consult a local attorney either before drafting a non-compete or before entering into one so that they can advise you as to whether it is going to be enforceable in your jurisdiction.

But it’s just a music school… how far can a non-compete agreement actually go?

Daniel P  05:49

Okay. So, Nate, I can already tell you have a lot of questions there. But I just want to ask a really basic one before you jump in, Nate. I have heard stuff like, “Oh, you know, they can’t tell you that you can’t teach within five miles of the studio,” or that it’s only enforceable as much as they actually want to take you to a court of law. 

I’m curious how you would respond to something like that. If I’m being too simplistic, jump in and push back, because this is the conversation in our industry. I’m merely repeating what I see. You’ll be like, “Oh, man, how do I even start with this guy,” but I’d love to hear what you’re thinking.

Stephanie M 06:43

So, technically, until somebody tries to enforce a provision in your contract, you could, you know, go compete within that five-mile radius. You’re obviously putting yourself at risk for being in breach of the agreement that you signed, which could result in damages and that kind of thing. 

But one other item I didn’t mention earlier is that a non-compete (or restrictive covenant) has to be tied to a legitimate business interest. And so in the case of a music studio, restricting somebody from teaching within a five mile radius would, in many instances, likely be closely tied to the legitimate business interest of the studio. 

And so there’s not a blanket. You can’t do that unless you’re in a jurisdiction in which non-competes are not enforceable at all. So again, I’m, as I said, licensed in Indiana. In Indiana, that would be a permissible restriction to prevent somebody from teaching within five miles of the studio. So long as the rest of the non-compete is within reasonable bounds.

Can a teacher who leaves my music school get hired at another local music school?

Nate S  08:05

Can I jump in here for a second? Because I so appreciate having your expertise here. In the 12 years that we’ve had Brooklyn Music Factory, our first attorney was the parent of a longtime student at our program, and then we’ve had a couple of others over the years. 

One of the one of the real challenges is actually linking to sort of the reality of being a very small business owner. So, going back to your five-mile radius example, let’s just say we’ll be in Indianapolis. There might be 20 schools within that five-mile radius already serving students. So just to get clear, if I hired Daniel to teach at my studio and said he could no longer teach within a five-mile radius after leaving within two years… are you saying that he couldn’t go get hired at the school on the same block? 

Stephanie M 09:07

If he signed the non-compete and it was within the bounds of the state’s interpretation of non-compete,

Then that is correct, he would not be able to go down the street to School of Rock and get a music job. 

And you have to keep in mind that these non-competes are not forever. The non-compete would have to be reasonable in terms of time, so more than likely it would be a two, three, maybe even a one year term. So he wouldn’t be prevented from working at the school down the street for forever. It would just be for the length of the non compete.

The 3 “reasonable criterion” your music school needs in a non-compete agreement

Nate S  09:44

Okay, so that’s fascinating. Can we rewind the tape to your three reasonable criteria? Scope, time, geographic. 

In Indianapolis for example, what would be a reasonable set of criteria that a school owner in that jurisdiction might put down? Just give us a sense: timeframe – would it be one year, two years, six months? I’m curious.

Stephanie M  10:21

So courts in the state of Indiana have frequently found that non-competes within a range of two to three years for employees can be found reasonable. 

Again, this is all facts specific, so just keep that in mind when I’m providing these answers.

And then the geographic scope also has to be reasonable, which can, in certain circumstances, be no more than five miles and can go all the way up to 20 miles depending on your type of business and the size of the school… that kind of thing. 

Let me go the other way. You could not restrict, for example, the whole state of Indiana, or you could not say the United States, because the non-compete has to be tied to the legitimate business interests of the employer. 

And the goal is not to put an employee out of work, or to prevent somebody from using their genuine skills, talents, and know-how from providing for themselves. The goal is to protect the business and the employer that has put their time, effort and money into growing their business. That’s why it’s got to be reasonable. 

If I were advising an employee… if the non-compete met all the requirements of reasonability and was likely to be enforceable, their recourse for the duration of their non-compete would be to provide services outside of that geographic territory. Maybe inconvenient for two years. But that would be an option, because it’s not like they can’t go teach anywhere, they just wouldn’t be able to teach within that geographic scope.

What’s a non-solicitation agreement? Should I be using that in my music school instead?

Daniel P  12:21

It sounds like most schools should actually be having their team sign a non-solicitation agreement. 

If a teacher is working for you, and they’re thinking to themselves, “You know what? I was really on board with the values of this school… I really liked their views… I really liked the idea of teaching kids rock pop in a band setting… but my background is in classical piano. And I want to start a school that teaches kids in that domain.”

Now, it’s still piano lessons from the outside looking in, so to speak. But this person has a real burning desire to do that. So they would maybe start teaching out of their home, perhaps have 20-30 students, whereas the school they came from maybe has 200, 300, 500 students. 

I know we didn’t have you come on for this. I’m just putting my opinion here. 

I don’t know, as a school owner, if it makes sense for you to do a non-compete with someone if they just want to leave and teach on their own because they want to be their own boss. So it sounds like in that case, perhaps maybe not. This is just my opinion, but maybe the thing really is the non-solicitation: 

“Hey, just don’t take our students.” 

I’m curious what your thoughts are on that. Stephanie, given the kind of scenario I laid out there.

Stephanie M  14:06

Right. The non-solicitation that we were discussing earlier, and that you just described is frequently used in businesses in which the main product is a service. So non-solicitations are really important… in the medical industry where patients are the consumers, so to speak; in the music studio setting, obviously, the students are also very important; or in sales. 

Salespeople most often have a non-solicitation in terms of who they can contact. And so yes, in this instance, if it would be, for example, too difficult to figure out what that geographic scope would be, maybe you don’t have a non-compete. Maybe you have a non-solicitation which would prevent the teacher from soliciting to provide services to any student that was enrolled at the studio during the time that they were employed there. 

Now, with the non-solicitation, there could be some issues in terms of, well, what if the teacher never taught one of the students? So for example, at a school with 200 to 300 students, maybe Jenny was never taught by teacher Johnny. But it just so happens that his home music studio is closer to her house, it’s better for her parents… Johnny had no idea that Jimmy was enrolled at his former employer, you know, there may be some wiggle room in that type of scenario because he didn’t solicit her, he didn’t know her from before, to provide, you know, music services, too. So it’s not as all-encompassing as it may sound, and, again, it’s going to depend on what the courts and the jurisdiction have.

How can I protect against families reaching out to a teacher who has left my studio?

Nate S  16:12

Stephanie, I want to zero in on that last comment there. But I think Daniel hit it on the head. In my experience, we’ve had a school, our numbers have fluctuated, but in its largest capacity, it has served well over a thousand students in any given year, and we instituted a non-compete. 

Between the three of us what we really meant to institute was a non-solicit, because the reality is, and I bet you all the listeners here are nodding their head to this, none of us are going to court after one of our teachers, we just aren’t. It’s not a reality. There’s not the funds in the budget. 

I know what an operating school budget looks like. I leave a line to spend both the time and dollars to try to find that teacher who took 15 guitar students, right? 

However, let me ask you the question and then reframe Daniel’s comment, because this is a very real thing that has happened at Brooklyn Music Factory. But I want to ask you one more nuanced question around solicitation, because you brought up a great nuance there, Stephanie. 

What if I never taught Jenny but somebody else at Brooklyn Music Factory taught Jenny? Is that still a non-solicit? This has happened recently, literally like a month ago. It broke the music factory. A teacher left and then the family solicited her to teach and continued teaching the student a month after she left.

They were like, “Hey, by the way, we’ve now left Brooklyn Music Factory, and we’re soliciting you, would you now teach our child again?” 

What’s your response to that scenario?

Stephanie M  18:08

Well, it’s going to be a typical lawyer response, because it’s going to depend on how the term solicitation is defined. And the restrictive covenant agreement.

Daniel P  18:18

How would you recommend that a school define that given Nate’s scenario… wanting to protect from that?

The language to use when communicating a non-compete/non-solicitation agreement from employer to employee

Stephanie M  18:26

Okay, so in Nate’s scenario, if you wanted to protect against families reaching out to a teacher that left, then you would want to make sure the non-solicitation prevented the teacher from providing services to current or former students that were enrolled at the time the person left the studio within six months… or something to that effect. 

So if the parent said, “Hey, we were at Brooklyn Music Factory, we’re no longer there, can you teach so and so,” it would be up to the former employee, but the correct answer would be, “You know, I’m really sorry, I would love to teach Jenny. But under my restrictive covenant, I’m not able to do so. Contact me again in six months.” 

But the reality is that just may not be practical. At that point, it may be a good idea if the employee left on good terms, contact the employer and ask for consent to provide these services. Because an employer can agree in writing that this would not be a breach of non-compete. If a music studio has 300 students and they have a good relationship with a former teacher, you know, they’d probably be okay with that. But that would be one manner in which you could try to make sure you’re not in breach of your agreement without having to turn down a client. Now, of course, if they said nope, can’t do it, then you might be a little out of luck in that scenario.

Nate S 20:16

I love the language. I love that you share the language for the employer to use with the employee. That’s one of the key changes in how we’ve worked with our employees, instead of showing them the document and being like, “Hey, this basically says this, sign it when you say, this is the purpose of this…”

If we get to the end of your employment at Brooklyn Music Factory and you find yourself being solicited by a family for a student, what you’re signing here is just asking you to use this language.

Anyone who’s listening should absolutely write down what Stephanie just said. Here’s the language to use.

How much would hiring an attorney to help with all this cost me??

Daniel P  21:07

And I’ll further say anyone listening would do very, very well to actually reach out to Stephanie if they have yet to draw up documents like this. 

One of the things I appreciate about Stephanie is that she’s done a lot of legal paperwork for me. I’ve loved just being able to get on Zoom with her and ask, from client to attorney, questions like, “Will you explain what this does for me?” … in the same way that she kind of explained that there. 

For us here on the show, she’s been able to do a lot of different things for me. I’ve made the joke before that I feel like I almost needed an attorney to help understand these documents. Like, well, that’s what I’m here for!

I have an unconventional question. And Stephanie, I know you’re not gonna like this question. I’m just going to say that. So think of a specific example. But maybe actually, before I ask the question, have you ever been in litigation before where you’ve had to either enforce or do work around a non-solicit?

Stephanie M 22:22

Yes, I do a little bit of litigation. It’s not my main focus of practice. But when I do litigate, it is in the business setting, and mainly involves restrictive covenants, such as non-competes, and non-solicits as well as intellectual property issues.

Daniel P  22:39

Okay. I’m curious, given the scenario earlier, can you estimate what it would cost an employer such as BMF or another, you know, fairly large school to actually enforce one of these non-solicits if it went by the numbers and was fairly quick and easy to deal with? 

Or maybe give me a few scenarios? 

I don’t know, if you want to push back and be like, “Well, what’s this? What’s this? What’s this?” 

See, I knew you would like this.

Stephanie M 23:12

Yeah, especially when it involves disputes, it is quite difficult to say, “Hey, I think this is gonna cost X amount,” because it involves other people. Yeah. And you don’t know how the other person’s going to react. In terms of cost, however, I would definitely recommend having an attorney dispute, which would permit the employer to recover their costs of enforcing the agreement.

Daniel P  23:53

Well, that wasn’t the question I asked. But it’s the answer we needed. I like that. That’s very helpful.

What’s the first step I should take when trying to enforce a non-compete?

Nate S  24:02

Daniel, I love your question around what it would cost in general. And, of course, we couldn’t actually get a hard number on that. So maybe I could just ask one last question. And then we’re wrapping this up, because it’s so good. 

Stephanie, the truth is, for a lot of us school owners, we’re sort of entering this world, honestly, as musicians first, and then as really passionate educators.

We had no idea when we started this business that we would come in contact with attorneys, with accountants, with, you know, CFOs, with all of these different amazing characters that actually go into the framework of operating a really successful, sustainable business.

So for our listeners, they’re super grateful that you’re willing to just talk openly with us. 

Stephanie, last question. If a teacher were to leave the school and then try to solicit a dozen of their students within the first month that they left, what’s the very first action that a school owner can take? What’s the simplest first step needed?

Stephanie M  25:11

The simple, simplest, most cost-effective step that a school owner can take is to send an email to the teacher reminding them of their non-compete, or a letter, anything in writing, because you want to document it, just reminding them of their non-compete and their non-solicitation agreement. 

Attach that to the email or in the letter just so they have it. 

If they disregard that notice from the employer, at that point, you would want to contact your attorney to discuss options as to how to prevent the former teacher from continuing to do this and get a game plan together with your local attorney.

Nate S  25:55

Hello. Yep. Yeah, amazing. I love the detail of putting it in writing to send an email and then attach the signed document. 

They signed this non-solicit five years ago, just remind them.

What you owe to yourself as a music studio owner…

Daniel P  26:09

Yeah, that might be all it takes. 

We’re touching on a subject that… if we do our homework as school owners, we’re hiring, we’re process-based while we’re hiring, and we’re having good conversations with employees/contractors as they come in, we’re doing it in a respectful way (explaining to them the purpose before they sign such documents and telling them that in light of the vision of the school it might never get to that point, which I think is the example because you leave with the heart)… 

Then, if that isn’t enough, sometimes there does need to be recourse. And I think that’s why we have these conversations. 

So Stephanie, thank you. I’d love to have you back on soon to answer another question. Maybe we could have a monthly segment, like “Ask the Attorney” or something. 

Yeah, who knows? I would say that if this is an area your school has not yet approached, or you whipped up a document in Microsoft Word thinking, “Oh, this will be enough…” Stephanie’s contact info is going to be in the notes of the show. 

You probably owe it to yourself if you’re serious about protecting your school, reaching out to Stephanie, or someone with an aunt and uncle who might be an attorney. But I’d definitely recommend it because I have had nothing but good experiences with her. 

Thanks so much. We’ll see you next time. Thank you, Stephanie.

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