http://www.JobSpectrum.org/job_noncompete1.html Boxed in By the Bottom Line: Noncompetes and Other Restrictive Post-Employment Agreements Nan Knight |
Scenario one: Scenario two: Scenario three: Jane, Bob, and Lydia each have come face-to-face with one of the most troublesome and controversial aspects of employment in the 21st-century workplace. For many companies, especially in the sciences, knowledge and intellectual property have become the most valuable assets. "In the past few years, the life and death of companies has hinged much more on ideas," says Shannon Miehe, an attorney and legal editor for Nolo.com, a legal resource Web site. "And protecting those ideas sometimes means placing specific restrictions on when, where, how, and with whom their employees work." The result has been a radical upswing in the numbers of employees asked to sign noncompetition and nondisclosure clauses as a condition of employment. A typical noncompete clause might ask that an employee promise that he or she will not work for a similar company in a specific geographic region during a finite amount of time after leaving a current position. Many employees balk at what they see as signing away the possibility of better jobs. And the courts often agree with them, says Miehe, author of Noncompete Agreements: Retain Key Employees and Your Trade Secrets (Nolo Press; 2000) and How to Create a Noncompete Agreement (Nolo Press; Fall 2001). "Many courts look unfavorably on terms and conditions that restrict the employee's right to earn a living." Regulations, laws, enforcement, and standards vary widely by state, so that decisions about signing such agreements are difficult. Although some experts believe these wide variations among states and industries will ultimately bring an end to such agreements, others point to recent court cases in which noncompetes were rigorously enforced. In June 2001, a former Avant! engineer was sentenced to a year in jail for funneling trade secrets between companies. In a few cases, courts have even indicated a willingness to support companies against departing employees and their new employers when no such agreements were signed at all. Learn the language. How does the savvy employee approach a noncompete or other "restrictive covenant" when it's presented by a new or even long-term employer? The key, as always, is to be armed with a working knowledge of the various implications of such an agreement, a range of potential strategies, and well-thought-out career goals. "The word 'noncompetes' is often used as an umbrella term for restrictive clauses and agreements that are legally quite different," says Miehe. The main types of restrictive clauses include:
The first two are much easier to enforce, says Miehe, because they deal with the transfer of specific and identifiable proprietary information. "Noncompetition agreements are sometimes seen as a safety net for nondisclosure and nonsolicitation agreements," she says. "If the employee sticks to the restrictive terms of a noncompete, it's a lot harder to be in a position to either give away important information or use the company's client base." Nondisparagement and noninterference clauses are often included when a company has specific fears about a bad relationship with an employee or about the possibility of a wholesale workforce exodus to a competitor. Look beyond the legalese. Five kinds of densely worded legal restrictions on where and how you can work in the future are probably five more than you ever wanted to know a lot about. Especially if you're about to start a new career, this may seem like one more set of dotted lines that require your quick attention before beginning a promising job. Legal experts advise you to step back and take the long view, asking the following questions:
Answering these questions requires that you look at what you're being asked to sign from two perspectives: the company's and your own. Moreover, you'll be better prepared to make a decision about signing if you know a little more about where experts believe such agreements may be headed in the future.
Protecting Workforce, Secrets, and Client Bases:
Noncompete clauses began to appear in the 1950s, with owners attempting to protect themselves from unfair competition. In the 1980s and 1990s, noncompete clauses became more common as a protection for medical practice groups that wanted to prevent physicians from leaving and taking their patients to a new practice. Most recently, the technical workforce shortage, especially in dot.coms and other high-tech endeavors, has led to a proliferation of noncompete and nondisclosure agreements and an escalation in enforcement and legal action. For employees and potential employees, these agreements may seem unnecessarily restrictive. But for many companies, they represent a safeguard against theft of ideas and loss of workforce in a vital economy. In general, companies use noncompete, nondisclosure, and other restrictive agreements to try to prevent:
Not every employee will be required to sign a noncompete or other restrictive agreement. Every company has to decide which of its employees should be presented with such agreements. You are most likely to be asked to sign such an agreement if you are one of the following:
Who decides which restrictive agreements are needed? If you work for a large corporation, in-house legal staff and a cadre of consulting attorneys take care of drafting, executing, and advising on enforcement of noncompetition clauses. "Most of our members have their own attorneys," says Cynthia Bookout, spokesperson for the Consumer Specialty Products Association, with members that include a number of large chemical companies. "These become in-house decisions and really don't come up as the subject of industry-wide conversation." Each corporation has its own set of agreements, which may differ depending on the state in which the employee will work and the position he or she may hold. Consistency among similar employees, however, is important. If 17 scientists have the same job description and the same responsibilities, the company should make sure that any restrictive agreements they sign are similar. Charges of discrimination have been brought when employees could show that signing requirements were inequitably enforced. Noncompete agreements are important for many smaller businesses. If you're
going to work for a small company, you may be surprised to see language
that not only prevents you from sharing trade secrets but that restricts
your ability to change jobs. For many smaller companies, the competitive
edge may lie entirely on the shoulders of a few skilled employees. Losing
these employees to a competitor could mean the end of the company. Many
smaller companies look to print and Web sites to begin to structure restrictive
agreements, turning to legal advisors to finalize the wording and structure
plans for enforcement. You can see samples of the kinds of online advice
your company may be consulting at sites such as Business
Owner's Toolkit . Careful wording One of the reasons that the wording of noncompetes and other restrictive agreements is becoming increasingly complicated is that more and more employees are consulting expert advice and hesitating before signing. A growing body of literature, including a do-it-yourself Web site, breakyourconcompete.com, assists employees in interpreting, negotiating, and sometimes circumventing the original intent of such agreements. One of the results is that most such agreements today are structured for "partial enforcement," meaning that even if one part is found by the courts to be unreasonable, the employee can still be held to the terms of the rest of the agreement. To enforce or not to enforce? Especially for employees' enjoying the warm welcome that usually accompanies signing on for a new job, it's impossible to believe that this friendly company would ever enforce what seem like obscure legal formalities. Think again! Companies are pursuing former employees with increased vigor, even in states where the courts traditionally have been reluctant to enforce noncompetes. Legal experts note that once a company decides to include restrictive clauses for employees, it should be ready to enforce them consistently. Miehe says, "If a company is selective about enforcing these clauses, then its chances will not be as good when the matter come before a judge." The court might take such random enforcement as an indication that the company really did not take such agreements seriously (and therefore that they were not vital to the company's success) or that the agreements were being used as retribution to go after a specific employee. Neil Caesar, an attorney who writes extensively on healthcare workplace issues, agrees, advising companies that: "Your ability to enforce a noncompete clause will directly relate to how consistently you enforce it a noncompete provision should be only as restrictive as you are willing to enforce, and then should be enforced vigorously." The Standard of Reasonableness From the perspective of employers, then, noncompetes and other restrictive agreements are means of guarding against a host of threatening events and business practices. Understanding this perspective can help you as an employee to identify what your company believes is really important about you and your work. Ultimately, though, you--like the courts--need to hold up these agreements to a standard of reasonableness. Is the company asking you to sign away more than you're willing to give? Are you giving up rights that legally should be yours? These and other questions, as well as tips for dealing with noncompetes, are included in Part 2 of this series. Part 3 looks at the future of restrictive employment clauses and revisits Jane, Bob, and Lydia to assess the potential impact of the agreements they're asked to sign. Nan Knight is a freelance science writer and editor whose credits include Smithsonian exhibits, Discovery Channel Web sites, and a wide range of publications on radiation in medicine.
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