How to handle Non-Compete Agreements
Since the COVID pandemic, and the well-known “flux” that the pandemic has put the workforce into, companies have had to be more precautious in protecting their most most valuable asset - their employees!
Non-competes are not a new phenomenon. Employees almost anywhere in the world will have some form of non-solicitation or confidentiality agreement written in their contract.
However, it is the USA where we have seen a major increase in the frequency of formal & restrictive non-competes. It is this issue we want to address in this article, and aim to provide some advice to you for what to look out for.
Ambiguity is not your friend:
We have seen candidates time and time again say “the non-compete is too broad to be enforceable” and that is very often true. However, if you are moving to a company who you know is a direct competitor, do not be surprised if your employer uses the ambiguity for their benefit as an effective scare tactic.
The reason for this is to make an example out of you in order to warn other employees thinking of leaving, and to fire a warning shot to your prospective new employer to warn them from targeting additional employees in the future.
The impact on you will almost always unfortunately, be negative, even though you have will have actually done nothing wrong. Your new employers Human Resources & Legal departments are there to prevent risk to the company. Therefore they will likely err on the side of caution, and ultimately advise strongly that they no longer proceed with hiring you in order to prevent a protracted legal argument.
On very rare occasions you could be left without employment as your current employer may still uphold your resignation, and your new employer now unwilling to proceed with hiring you.
If you believe your non-compete falls within the “ambiguous” definition, work to ensure that there are amendments and clauses included that protect you and allow you to always gain employment within your chosen field. Ideally, you will be able to remove any & all clauses from your contract, but if this is not possible, knowing that you are protected in the future will give you great confidence. Assuming that a vague non-compete protects you is no longer a great defence.
Check your state law:
If you are ever presented with a formal non-compete or anything you deem to be restrictive, check with a specialist employment law attorney. They will be able to advise on its legality and what restrictions could lawfully be placed upon you.
Candidates will often use their trusted family attorney but please be wary of this. Employment law is continually changing and therefore it is important to seek a specialist when considering signing such an important document.
Virtually every US state will have a slightly different interpretation and enforceability surrounding non-competes, and it is vitally important to understand the obligations and impacts such a document could have on your career
What to accept in a non-compete?
If a non-compete argument ever went all the way to court, it is unlikely the employee would win, as a court will always side with the individual who is seeking to make a living within their chosen field. Many US states are governed by the “right to work” principle as well which also tends to side with the employee over the employer.
However, some recent landmark rulings have resulted in wins for the employer. This has then led to a trend of companies mimicking the contracts of employers who have won to strengthen their own employment contracts.
As we have mentioned above, ambiguity is not your friend in a non-compete. If you are going to sign a non-compete ensure it is specifically outlined which technology or companies you cannot work for, and ensure an agreed length of non-compete is in place. As a general rule in the USA, 6-12 months is the maximum.
Achieving a clear outline of what you can, and cannot do, means both parties know what each other’s obligations are, and the issue of ambiguity is removed. This will also help your future employers in being able to hire you into a suitable role that won’t contravene the non-compete.
If your current employer ties your non-compete to financial awards, this is also something that we have seen upheld by the Courts. It goes without saying that adding financial rewards to a non-compete is done for the pure purpose of encouraging you to sign up to the non-compete. It is important to understand this and not to be blinded by the opportunity for short term financial gain.
There are two issues with financially supported non-competes.
One, if you were then to leave during a prescribed time frame outlined in the agreement, there will be a clause stipulating that any money paid to you will have to be repaid immediately.
Secondly, the Courts can uphold the argument on the basis that both parties entered willingly in to the agreement, and both benefitted from doing so, and therefore the employer is well within their rights to ask the Courts to enforce their side of the agreement, even if you are no longer willing to do so.
Compensation during the non-compete:
Finally, if a non-compete is to be included in your contract, you can ask that you are compensated accordingly for the time you are “off the market”.
This is common practice within Europe & European Union whereby a company is obliged to put you on an extended period of garden leave if they wish to hold you to a non-compete. If a company is asking you to sign a 6 or 12 month non-compete, it is definitely worth asking to be fairly compensated for not working within the market for the prescribed period of time.
Such a clause is often used for those employees who have access to highly confidential or protected information such as if you work within Engineering, Technology or Research & Development functions, but we have seen senior individuals held to similar agreements.
Conclusions:
Hopefully the above gives insights on what to look out for when engaging in a new contract, or when reviewing your existing contract if you are looking to begin searching for a new career.
At TH Daniels, we are always happy to offer advice regarding non-competes, and what trends we are seeing in the market, but please do ensure you also always seek official legal advice when signing what looks to be a non-compete agreement.
Thanks for reading - it would be great to hear your thoughts in the comments.