The Right to Work: Tips for Coping with Noncompetes
Nan Knight

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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.

Enforcement—Just 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 competition—even 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.