Protecting Your Investment

Consider a non-compete agreement for your business to remain profitable.

By Gary Shawver, MGWC

When someone thinks of protecting their investment, they often think of money, stocks, or something of great value like their business.

If you own a water well drilling or pump installation business, then you know the hard work that went into establishing the company, purchasing equipment, hiring employees, getting jobs, and establishing yourself in the industry.

It takes time and tons of effort and probably some sleepless nights along the way. That’s why it’s important to ensure your firm remains viable and avoids potentially catastrophic events that could force you out of business unwillingly.

Exploring Non-Compete Agreements

I was operating five drilling rigs year-round in 2002 and had a good backlog of work. But in March that year I had two of my key drillers walk in one day and give their two-week notice! I was shocked to say the least but even more shocked when one of them told me they were going into business for themselves together!

If you’ve trained a good employee to become a good driller, you obviously want to keep that employee to help your company grow and become profitable.

At that time, I didn’t have any other employees capable of stepping up and operating a drill, and in my state a person had to have at least one year of industry experience to get a provisional license to drill. I had to scramble to figure out what I could do to keep the business operating and viable as we had a lot of support staff supporting the five rigs.

I was eventually able to overcome the loss, but it took me at least three full years to get back to the capability I had before the two drillers left.

When I got my feet back on the ground, I decided to explore non-compete agreements. I had heard about them but didn’t know much about them.

I was using a legal firm that specialized in helping businesses with special issues such as wrongful termination and workman’s compensation issues, and called the attorney whom I dealt with at this firm to discuss non-compete agreements with him.

He told me so long as the non-compete was drawn up reasonably that it would hold up in a court of law. I then had him draw up an agreement and had all my employees sign it.

Training New Drillers

In my experience, I found it was better to train drillers from the bottom up as opposed to hiring drillers who already had experience.

Every firm operates differently, and each firm has certain methods of well construction as well as specialized operating procedures that work best for them. While I hired a few outside drillers from time to time, most never stayed more than a year or so and moved on.

As most of you know, it takes a lot of time and effort to train a driller to become a proficient rig operator. There are many skill sets that, although not limited to, are required:

  • Learning geologic formations and being able to read the formations as one drills through them
  • Learning well basics and well construction
  • Learning how to operate and maintain the drill and other related equipment such as grouters, welders, etc.
    Learning to weld, mix grout, glue casing together, etc.
  • Learning to operate over-the-road equipment and obtaining a commercial driver’s license
  • Passing a written test to become certified or licensed in your state
  • Getting continuing CEU’s for certification or a license.

All this requires time and training. In addition, training slows down your operation as these newbies are going to have to grab the controls of a drill rig at some point with a seasoned driller so they can learn.

Therefore, some of the wells you have lined up are not going to be as profitable for a time as the driller trainee gets up to speed. In addition, when you do put them out on their own, it will take some time before they are efficient drillers bringing in a profit for the company.

During all this training, your future drillers are learning how you operate and how you drill your wells. You’re teaching them a trade where they can procure a good living.

Facing a Dilemma

If you’ve trained a good employee to become a good driller, you obviously want to keep that employee to help your company grow and become profitable.

The entrepreneurial spirit that has made this country great is necessary to keep flourishing if capitalism is to survive. All business owners reading this certainly fit that bill or there would be no drilling businesses. As a result, losing employees to start their own business is a necessary part of the entrepreneurial spirit of this country.

However, when employees who you’ve trained from the bottom up quit to go out and compete against you, it leaves you totally exposed. Records of wells and other data may walk out the door with them. You have a dilemma.

When I set up my non-compete, I outlined to my attorney the distance other established competitors were from me and outlined how long I thought it would take to get a new competent employee up and efficiently running. From there he drew up the agreement.

Typically, a non-compete agreement states an employee must wait a period of a certain number of years and cannot operate within a set number of miles of my registered place of business. In addition, all information from my company is proprietary and solely owned by the company. Removing it from the premises is illegal.

The non-compete agreement does not prevent them from starting their own business or working for another contractor so long as the contractor does not compete or work in the trade area listed in the non-compete agreement.

A few years later, I had another employee leave and try to compete against me in my trade area. The non-compete agreement held up in court and I won.

Presenting the Non-Compete to Employees

When I had my non-compete agreement drawn up and ready to go, I had a company meeting and presented it to the employees.

At the completion of the meeting, I gave them all a copy and asked them to sign it within a couple of weeks. I told them to take it home and review it before they signed it. Most signed it willingly, but I had a few who initially did not want to sign it. Eventually they did.

When I presented it to them, I outlined that if they were looking at my company as a long-term company of employment, it was important that it remained viable—and having employees leave and compete against us was a threat to this goal.

I also outlined to them that starting one’s own business was part of the American entrepreneurial spirit and this did not prevent someone from doing so—they just can’t do it in my area.

Since that time, all new employees are required to sign a non-compete or we don’t hire them. Most never even give it a thought since all personnel hired have no experience working in the water well or pump installation industry to begin with.

From time to time we’ve had to modify the non-compete agreement to keep current with what the company does for services. For example, as we expanded into doing more geothermal work, we had to modify the agreement to include that language.

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I cannot emphasize enough that if one is interested in drawing up a non-compete agreement—hire a legal firm that specializes in this type of
work. A non-compete does not do you any good if it’s not properly drawn up by a competent and knowledgeable attorney in this field.

Additionally, states may have differing laws about non-competes. Your attorney should know about any laws in your state and how to draw up an agreement based on the rules that exist.

Protecting your investment is an essential part of owning your business. A non-compete agreement is something you may wish to consider.

DACUM Codes
To help meet your professional needs, this column covers skills and competencies found in DACUM charts for drillers, pump installers, and geothermal contractors. DO refers to the drilling chart, PI refers to the pumps chart, and GO represents the geothermal chart. The letter and number immediately following is the skill on the chart covered by the column. This column covers: DOK-2, DOK-14, GOI-2, GOI-14. More information on DACUM and the charts are available at www.NGWA.org/Certification and click on “Certification Exams.”

Gary Shawver, MGWC, is president of Shawver Well Co. Inc. in Fredericksburg, Iowa. He has been in the water well industry for more than 40 years and is a Master Groundwater Contractor. He served on the NGWA Board of Directors. Shawver is semi-retired, having sold his business to his employees. He can be reached at grs@shawverwell.com.