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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.
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.
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.
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.
Click here to read >>
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. |
Other articles by Sarah Hightower include:
Some Fees are Worth Every Penny
Non-Competes – To Sign or Not to Sign?
Non-Competes – Should We Or Shouldn’t We? An employer’s perspective
Embellished Resumes - A Real Problem
Body Language Can Make or Break Interviews
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