Part I
of this series introduced noncompete clauses as
a condition of employment and how management views
them. This installment offers information on employees'
basic rights and strategies to keep in mind when
presented with a noncompete or other type of restrictive
employment agreement.
Noncompetes and similar agreements first became
the focus of media attention in the frenzy of
dot-com and high-tech expansion in the late 1990s.
The labor market was tight, companies were scrambling
for good employees, and huge signing bonuses were
offered to the most capable jobseekers. Skyrocketing
salaries and bonuses induced many workers to begin
a round of career musical chairs, jumping from
one company to another. Many companies introduced
noncompete clauses specifically to maintain employees.
The point was not so much to guard company secrets
as to keep a fully functioning workforce.
As the economy continued to heat up, these types
of concerns percolated throughout a wide spectrum
of jobs. Starbucks required its Frappucino makers
to sign noncompetes.
US News and World Report noted that the practice
had spread to professions as diverse as laser
eye surgery and body piercing.
Enforcement increased, too, with more former
employees finding themselves taken to court to
stop employment with competitors. A cottage industry
of advice and anecdotal reports on experiences
with noncompetes grew up on the Web. Most recently,
breakyournoncompete.com,
the brainchild of a northern Virginia attorney,
offers (for a price) a three-pronged strategy
for dealing with restrictive clauses.
Most legal experts advise employees to be aware
first of basic rights and then to use specific
strategies. You have the right to:
- Compensation: When you sign a noncompete or
other restrictive agreement, you're signing
away something of value. Most courts hold that
your company needs to provide you with something
of value in return. If you're just beginning
a job, the position itself is the incentive.
If you're asked to sign a noncompete in the
middle of your employment or at separation,
you may have some leverage in asking for additional
compensation.
- Counsel: Even if you're sitting in the Human
Resources office, ready to begin your first
exciting day at work, you don't have to sign
the noncompete just because it's part of the
rest of the paperwork put before you. Tell the
company representative that you'd like to think
about it for a few days. Make sure you leave
the office with a copy of the agreement, so
that you can seek legal advice about signing.
- Your chosen career: Your attorney will help
you decide whether the rights you are signing
away in the agreement may significantly affect
your right to earn a living at another job.
Different stages, different options
You may be presented with a noncompete or other
restrictive agreement at any point during your
employment. Your response may vary, depending
on your longevity and status with the company
and your plans for the future. How you respond
depends on where you are in your employment.
At the beginning of your employment. In
addition to your right to take the agreement away
and consult legal advice, you may want to negotiate
the wording to make it less restrictive. You may,
for example, ask that it apply only if you leave
voluntarily (a safeguard in case you are laid
off or fired). For specific noncompetition clauses,
ask whether the company would be willing to narrow
the stipulated time frame or geographic areas
that restrict your future employment. This is
the real funnel point for noncompetes, where many
employees feel they must sign in order to get
the job. Stepping back and asking about alternatives
may pay off in the long run.
When you've already been at the company for
some time. You can try to avoid signing the
agreement, but in most companies this tactic will
work only for a limited time. You are in an excellent
position to negotiate, however. The company, in
exchange for your signing, should offer compensation,
either in the form of a bonus, increased leave,
or increased benefits. This is also an opportunity
to assess what has changed that makes the company
now feel such agreements are necessary. Ultimately,
you'll probably have to sign. Your state's laws
may allow your employer to fire you for refusing.
At termination. This is where you have
the upper hand. Whether you resign, are laid off,
or are fired, most legal advisors say that you
don't have to sign anything. Your company cannot
hold back the benefits that are legally yours-promised
severance and vested pension, for example. They
may offer an extra inducement for signing, such
as pay for accumulated sick leave or a bonus based
on years of service. Be direct about your reasons
for not signing. If it's an additional inducement
you want, such as more money, name a figure. If
you're adamant about not signing, especially to
protect your next job, you might still get the
sick leave pay or bonus by offering a trade to
your employer. If the real problem for your company
is that you're leaving a hole in the workforce,
you could offer to stay for a longer period or
to train your replacement. Try to leave your previous
employer on the friendliest terms possible. Whatever
your feelings, this is no time to burn bridges.
At your next place of employment. Remember
that the reach of your previous employer may follow
you, through the agreements you signed, to your
new position. You should be completely honest
with your new employer about the nature of these
agreements and, if requested, should be able to
share copies of these. Not only might you be liable
for breaching the terms of your agreement with
your previous employer, but also your new employer
may find themselves in court on charges of "tortious
interference."
Identifying unreasonable demands
Noncompetes in general are judged by courts to
be unreasonable if their terms restrict your right
to earn a living. Agreements may be found to be
unreasonable if:
Too long a time period is stipulated.
Six months is usually the shortest term, but some
agreements stipulate two years. Beyond that time
period, experts suggest, you have a good change
of arguing that the requirement is unreasonable.
The exception is in the case of executives and
other highly paid workers who are given sizable
severance compensation that might reasonably last
for a longer period.
However, in the past two years, courts have passed
down surprising restrictions on time periods in
noncompetes. In 1999, a judge held that a one-year
term in an EarthWeb employee's noncompete clause
was an "eternity" in the dot-com world
and that the result served to "indenture
the employee." Although some advisors see
this as a heartening example of the courts consideration
of specific cases, others see it as further evidence
that noncompetes are difficult to litigate and
too variable to predict.
Too wide an area is specified. Some noncompete
agreements specify that you cannot work in the
same city or sales area or sometimes the same
state. But others, especially for large corporations,
may imply that you cannot work anywhere for a
similar company for a set time period. This is
much more difficult to prove reasonable, because
courts in one state might not be willing to enforce
such contracts, especially when originally made
elsewhere.
Too wide a range of endeavors is specified.
Your specialty may be organic chemistry. If your
noncompete bars you from working anywhere and
doing anything at all with organic chemistry for
a certain time period, then a court would be likely
to find the agreement too broad and therefore
unreasonable. A number of positions might be open
in your field that had nothing at all to do with
the specific work content of your last job.
Too wide a range of information is specified.
If the wording of the agreement prevents you from
saying where you last worked and the general nature
of your work, then it becomes very difficult to
seek a job elsewhere. And some agreements are
worded so broadly that they seem to include not
only information that was specific to your work
with the company but widely known facts, such
as basic science, that you would need in another
job. Such agreements are often held to be unreasonable.
Fraudulent inducement. Some courts will
hold noncompete clauses to be unreasonable and
nonbinding if the terms or significance of the
agreement were misrepresented to you by the company,
even if the actual wording should have been clear.
If you're presented with an agreement and the
company representative says, "Oh, this is
just a legal formality. Nobody ever pays attention
to this, and we don't enforce this kind of thing,"
then you might claim fraudulent inducement if
later held to the letter of the agreement. Experts
note that you would be wise to have had a lawyer
look at the agreement in the first place, and
wiser still to have a witness to the company representative's
remarks.
Bad faith termination. If you are fired
for not performing your job to your company's
satisfaction, then some courts will hold that
the company has implicitly made it clear that
you have no value to them. And if you have no
value, then they cannot reasonably be said to
lose something of value when you go to work for
another company before the terms of your noncompete
agreement expire. This is tricky territory, but
in some instances has been upheld by the courts.
EnforcementJust a scare tactic?
Many employees, especially those signing on to
a new job, go ahead and sign a noncompete or other
restrictive employment agreement, believing that
the wording is included simply as a warning. Not
so, say Shannon Miehe, a San Francisco attorney
and legal editor for Nolo.com,
"These agreements have teeth, and they will
absolutely come back to bite you." The courts
favor companies who enforce their noncompetes
consistently, and more and more large companies
are routinely pursuing cases they would have let
slide a decade ago.
What you stand to lose in breaching a signed
agreement depends on the state in which you live
and the exact wording of the agreement. You may
be required to pay "liquidated damages"
to compensate your previous employer for business
lost to a new employer. You might be compelled
to give back severance pay or other benefits you
received at separation if you go to work for the
competition before the time frame on your noncompete
expires. If the company is successful in legal
action against you, you may be compelled to pay
court costs.
Even more scary are recent lawsuits invoking
the doctrine of "inevitable disclosure,"
which holds that an employee will inevitably reveal
important details about their previous employer
and so should not be allowed to work for the competitioneven
if no noncompete was ever signed.
The Bottom Line
Remember that, in most cases, noncompetes and
other restrictive employment agreements are designed
to protect the interests of the company for which
you work. The fact that others in your company
sign and adhere to such agreements may actually
protect your continued employment by assuring
the company's continued success. But you need
to balance your needs against those of your employer
when signing. To deal effectively with such agreements,
you should know your rights, exercise your options,
think about your future, and have ready access
to qualified legal advice. It's one of the most
challenging areas of workplace practice, and the
more you know, the better deal you'll be able
to strike with current and future employers.
Next week: The future of restrictive employment
clauses.
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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