Imperative or Impossible? The Future of Restrictive Employment Clauses
Nan Knight
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Part
I of this series introduced noncompete clauses
as a condition of employment and how management
views them. Part
II offers information on employees' basic
rights and strategies to keep in mind when presented
with a noncompete or other type of restrictive
employment agreement. This last installment asks
whether noncompetes are still useful in a fast-changing
world.
With the recent economic downswing and hard times
for many high-tech businesses, you might think
that companies are easing up on noncompetes and
other restrictive employment clauses. Just the
opposite seems to be happening, with new and more
complicated cases coming to litigation each month.
Corporations that once asked employees on an ad
hoc basis to sign such agreements now have standard
forms that must be signed by every new employee.
And employees are fighting back in record numbers.
This is "great for lawyers," says Stuart
L. Adams, Jr., a Louisville, Kentucky, attorney,
of the increasing numbers of suits over noncompetes.
"There seems to be an endless supply of both
employees calling to see if they can get out of
one, as well as employers asking to have one drawn
up or to improve on one they have recently had
struck down in court." But in an article
in Louisville
Computer News, Adams voiced his own distress
over the standard noncompete agreement, calling
it an "anachronism under siege" and
a "brain drain." The variability in
terminology, enforcement, state-by-state nuances,
and changing standards of practice signal a difficult
course for the coherent development of such agreements
in the future, he maintains.
On The Plus Side
Some states, such as California, have ruled that
certain types of noncompete agreements are not
legal. Other states are very unlikely to enforce
such agreements--something that most employees
have no way of knowing when they sign. Several
resources are available for information on your
state's stance on noncompetes, including Covenants
Not to Compete: A State-by-State Survey, by B.M.
Malsberger, A.H. Pedowitz, and R. Sikkel (Washington,
DC: Bureau of National Affairs, Inc.; 1999).
Courts tend to look favorably on employees who
have behaved in good faith and harshly on companies
that require agreements that restrict future employment
unnecessarily. With capable representation and
the facts on your side, your chances of coming
out on top in such a situation are good.
On The Negative Side
Large corporations, associations, and other business
entities have more time, money, and attorneys
than you. They can afford to prolong the process
of enforcement, spend money on frivolous suits,
and tie you up in court. Avoiding such a confrontation,
by being careful about what you sign and when,
is your best bet.
And the alternatives
If you can't stand the idea of signing a noncompete
or a restrictive agreement, try an employment
situation that doesn't require one. Most academic
positions, from elementary school through universities,
do not ask their employees to sign noncompetes.
In most cases you only commit yourself for the
duration of the academic year. If you teach chemistry
at a public high school this year, you're free
to switch to a junior college the next.
The federal government has some restrictions
on future consulting for its employees, but, for
the most part, these are far less stringent than
those applied in the private sector. The CEOs
of some of the most successful scientific startups
came directly from similar government work.
The future? Answer hazy. Ask again later.
It is highly unlikely that uniform standards
will be developed for noncompetes and other restrictive
employment clauses, but case law will continue
to shape and direct the wording and enforcement
of such agreements. As technology evolves, new
types of clauses will no doubt be created to cover
changing avenues of knowledge "leakage"
and worker mobility. For employees, general advice
about entering into such agreements will always
be shaped by their own specific circumstances.
"First, we'll call all the lawyers."
--With apologies to Shakespeare
In devising answers to the opening scenarios,
one common theme emerges. Legal advice is essential,
whether you're an employee presented with a noncompete
or other restrictive agreement or a company contemplating
either the implementation or enforcement of such
agreements.
Remember Jane, who was concerned about why
her company would ask her to sign a noncompete
even though she is a current employee? Jane is
right--her company is sending her a message, but
it's not the one she thinks they're sending. By
asking her to sign the noncompete in the middle
of the project, the company is making it clear
that she's a valued employee whose skills and
knowledge base are essential to continued success.
The last thing the company wants is for Jane to
leave. She is offered a substantial bonus for
signing the document, a practice consistent with
the legal necessity of offering something "of
value" to employees who sign such agreements.
Should she sign? If she plans to stay with the
company and her own attorney looks over the agreement
and finds that it is not unnecessarily restrictive,
she can sign the agreement. If she's feeling especially
confident, she might even try to get the bonus
increased or ask for changes in her benefits structure.
In the second example Bob, our sales applicant,
was presented with a noncompete agreement on his
first day at work that would restrict his subsequent
employment elsewhere. Bob needs to think carefully
about signing the agreement. Does he really plan
to stay with this job long enough to make the
restrictions worthwhile? Are the restrictions
specific as to time, geographical area, and type
of future employment? It's in Bob's best interest
to ask an employment attorney about the reasonableness
of the restrictions. If the restrictions are so
out of bounds that the courts are unlikely to
enforce them, then Bob can take a chance on signing
and dealing with the consequences should he breach
the terms of the agreement. Most legal experts
advise against this. Bob needs to be direct with
management about what kinds of restrictions he
will accept. If the company proves unyielding,
then he might be happier working in a situation
in which such an agreement is not hanging over
his head.
And then there's Lydia, who was presented
with a noncompete as she is preparing to start
a new job, which the company says she must sign
before recieving her promised severance pay and
vested pension. Despite whatever hard-sell tactics
management may use with Lydia, she is not obliged
to sign any noncompete, nondisclosure, or other
restrictive agreements when terminating her employment.
She is entitled to whatever benefits her employer
typically gives to departing workers as well as
her legally vested pension and retirement benefits.
The company may use "extra" benefits,
such as pay for accumulated sick leave, as incentives
for signing. If Lydia feels she has nothing to
lose, she might choose to ask for additional severance
pay or other compensation for signing the agreement.
Whether she signs or not, the provisions of the
Uniform Trade Secrets Act or its state-level equivalents
will still restrict her from sharing trade secrets
with her new employer. But most legal experts
agree that she is entirely within her rights to
refuse to sign any agreements that restrict where,
when, and with whom she can work in the future.
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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