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December 01, 2005
Non-Competes – To Sign or Not to Sign?
— Written by Sarah Hightower Hill
If your employer or prospective employer is asking you to sign a non-compete agreement, you are not alone. More than ever before companies are attempting to protect their trade secrets and competitive edge by asking key employees to sign agreements prohibiting them from unfairly damaging the employer by divulging information to competitors.
There are, however, many important and complex issues involved and you should be fully informed before you sign. Accordingly, it is highly recommended that you consult your attorney before signing any legal document. In addition, the Internet is a wealth of information from almost every state in the union regarding the components, enforceability, reasonableness and breaking of non-compete agreements. A simple search at www.google.com using the key words “non compete agreements” returns more than 485 thousand listings, a little homework on your part may save you time and money in the future, not to mention the grief of costly litigation.
In the text below I have prioritized and addressed some of the most frequently asked questions by our clients. Please note that the information below is a compilation of information gathered from research sources and is not intended to be treated as legal advice. Also realize that the relative enforceability of non-compete provisions varies drastically depending upon the type of employment, the industry and the state law involved.
CAN I BREAK MY NON-COMPETE?
There are many points of thought regarding the enforceability of a non-compete agreement. In general they are designed to be enforceable and many are. However, there are circumstances under which your right to work in your chosen profession may be unfairly compromised by the non-compete you signed and in many cases under those circumstances the courts will respond favorably to the employee.
Example:
1. Will your employer want to fight you in court over your non-compete agreement if, through the court proceeding, you publicly reveal illegal, unethical or immoral conduct in which your employer engages, particularly if that employer directed you to engage in those activities. If your personal credibility and ability to earn in the future may be damaged by your employer’s wrong doing or reputation – chances are he won’t want to face off with you in court.
2.If the non-compete agreement is overbroad or prohibits competition for too long of a time period or if it covers too large a geographic area, or if it prohibits too many activities, courts may be inclined to view it unfavorably.
3. Some employers will allow unsuccessful employees (particularly in sales) to leave their organization and join competing organizations or they simply have allowed other employees to leave and took no steps to enforce the non-compete against those employees. Once this occurs any other employee may use this example to show cause why a court should not enforce a non-compete. The court may feel that the employer effectively waived the benefit of the protection of the non-compete agreement (by not enforcing it against everyone) and refuse to enforce it. Please note that this is differs greatly from jurisdiction to jurisdiction.
4. A court may rule against an employer when the non-compete comes into question as a result of breaches of obligation by the employer. As an example, an employer who breaches obligations in a material way such as failure to do something that he is obligated to do for the employee. Breaches of obligation may include failure to make proper and timely payments of compensation – failure to provide sufficient sales leads if it is the employer’s obligation to do so – failure to provide a workplace free from hostility or other circumstances under which it would be difficult for an employee to sustain their ability to earn their living.
COVENANT NOT TO COMPETE – WHAT IS IT REALLY?
Simple and not so simple – a covenant not to compete, or a non-compete agreement is a promise made by an employee to his or her employer to not compete for a specified time in a specified location. It does not necessarily have to be a stand alone document, it may be included as part of an employment agreement.
ARE THEY ENFORCEABLE?
Generally speaking, yes, courts will enforce them if they meet the following guidelines (court attitude varies from state to state)
a. An employer can prove a legitimate business interest to protect by restricting a person from competing against it.Courts often frown on restrictions placed by employers on their employee’s right to find and make a living. And some courts, such as California, are very specific in their attitude toward non-competes, going so far as to hold that restrictive covenants in California are completely void, subject to very limited exceptions.
b. The restriction is not greater than the minimum necessary to protect the employer’s business interest.
c.The agreement is supported by consideration, something the employee received in exchange for it. This could be the job, information, money.
If the restrictions against competition restrict an employee from doing the same job for any other competitor in many specialized situations, it may be too broad and the employer may have a great deal of difficulty convincing any court that their business interest is important enough to prevent a person from supporting themselves or their families.
CAN I NEGOTIATE THE TERMS OF THE NON-COMPETE?
Absolutely – first you should ask to limit the agreement to only those items that are necessary to protect the employer. Second, if it might prevent you from working for a period of time, ask to be compensated for that time, especially if it is a highly specialized industry or occupation. Certainly the best person to advise you is your attorney. If you don’t currently have a relationship with an attorney, there are many free and community legal services available to you- it’s worth your time.
In summary, non compete agreements in whatever form, are serious documents and should be considered so. Do not enter into one with the attitude that you can break it later or that it won’t hold up in court. Many state courts have the ability to strike some parts of an agreement and uphold others. Do your homework, know what you are signing and what your obligations are to your employer. If your employer breaches the agreement, or compromises you in any way, have confidence that courts are generally more sensitive to a person’s right to earn a living than they may be to an unreasonable employer or one with “dirty hands”.
Next – Non-Competes from the Employer’s Perspective.
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About the author:
Sarah Hightower is CEO of Chandler Hill Partners, the Nation’s leading career search specialists. For nearly 15 years,Sarah Hightower has been successful in helping mid- to high-level executives and professionals outperform the competition. Her clients have included executives, managers and support personnel, as well as employees from both public and private sectors across an array of industries. Her groundbreaking work in the career development field has resulted in targeted, solution-oriented services that deliver the most effective and fastest search cycle times. Sarah is also the architect and driving force behind Chandler Hill Partners’ community service program “Find Your Future” -- a two part strategy helping motivate high school students to stay invested in their education while helping drop outs to find career opportunities. |
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Other articles by Sarah Hightower include:
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