Non-Compete Agreements: What You Need to Know
You’re excited about your new offer. It’s with a good company and in your field of interest. You just need to sign a few documents here, a few contract forms there, and you’re ready for a new beginning. But there’s this one other document, a non-compete agreement, which you stumble upon just as you’re getting ready to turn in all your forms. What does it mean if you sign, and what can you do to protect yourself?
(Photo Credit: Stuart Miles/freedigitalphotos.net)
A non-compete agreement is a legal contract between an employer and employee, or any person doing business or consulting with the employer, which stipulates the terms of termination, specifically restricting the employee/consultant from seeking employment or consulting with a competitor. It restricts them from performing work similar with their responsibilities with the current employer for a specific period of time within a specified geographical area.
Conventionally reserved for higher-level executives or employees working in critical teams like product development/business intelligence, non-competes are now being administered across many job levels, across industries. The Wall Street Journal reports a 60 percent increase in the numbers of ex-employees sued by employers for breaching their non-compete.
A recent article in The New York Times discusses such clauses imposed on professionals across varied fields: event planners, chefs, yoga instructors. In fact Jimmy John’s Sandwich chain has gathered a lot of flak for administering non-competes to several rank-and-file employees, including low-wage delivery drivers.
Comparing the agreements to economic slavery, Robert Ottinger, an employment attorney, says that the right approach is to decline the offer.
“They (employers) can treat you poorly; pay you poorly. Why give someone a raise if you know they can’t leave? You’re really doing yourself in if you sign these things. It’s a trap,” he says.
While the enforceability of non-competes varies state to state, there are a few things to consider before you sign the document, if rejecting the job offer is not an option. You may also be in a position to negotiate the non-compete, as most courts entertain only reasonable restrictions and consider the impact on the employee. This applies to all new requests for non-compete including promotion, role change, change of management, etc.
- Take your time to read through the document. Consult an attorney if required and understand what the restrictions are. This is particularly important if you are at a mid/higher level or are a subject matter expert. You don’t have to give your acceptance right away. Evaluate the terms and understand the consequences.
- Discuss the employer’s real concern. If it is preserving confidentiality of critical information, then a non-disclosure agreement could solve the problem without having you forgo all your employment options.
- Understand the geographic restrictions and competition mentioned. If it is too vague and too broad, ask your employer to be more explicit and reasonable with geographic restrictions.
- Get them to be specific about the type of termination. How will voluntary and involuntary terminations be treated?
- Consider asking the employer to pay you for the time you are bound by the non-compete. Author Rod Stephens writes “…although some may think this is a radical idea, it offers distinct advantages to the employer and employee. For the employer, the prospect of having to pay a departed employee its wages has the effect of causing the employer to give serious thought to the duration and geographic scope of the agreement. In addition, by paying an employee during the period of non-competition, the employer has the contractual and moral high ground in the event it has to enforce the agreement. For the employee, it provides an income during the period of non-competition and thereby provides an incentive not to violate the agreement.”
- Discuss your end of the deal, too. Anne M. Smith at Investopedia suggests that you “…ask for assurance in the document that as you gain experience with the company, you will regularly be considered for raises and promotions, so that you are not stuck at your entry-level salary, trapped by a non-compete.”
While the non-compete could be pretty daunting, it does have workarounds, depending on your aspirations and the job market. Be careful and thorough in understanding the expectations from you before you take the plunge.
Tell Us What You Think
Have suggestions/experiences to share? We want to hear from you! Leave a comment or join the discussion on Twitter.