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NON-COMPETES: The Employee Perspective
Posted on June 5, 2013 in Consulting, Employment Litigation
Nothing evokes more emotion in the arena of employment matters like non-competes. People who signed a non-compete later expound about unfairness and being unable to make a living. Employers willingly take hypocritical positions when it comes to non-competes. They want to enforce non-competes within their own talent pool but will quickly hire a competitor’s gifted employee irrespective of whether the candidate has signed a non-compete.
In this newsletter, I offer guidance to employees who are asked to sign a non-compete. I will look at the opposite side of the equation and discuss what employers should consider with non-competes in my next newsletter.
1. Ask about non-competes before you take the job
Starting a new job is exciting. People focus on the good things, like more money, better benefits, and a shorter commute. Employees rarely ask, sometimes are not even told, about the agreements and policies they must accept when they show up for work. By then, the employee has quit his or her previous position and has little options but to agree to the new employer’s terms.
A better approach is for employees to ask about all the conditions of employment in the interviewing process. Employees should get copies of everything they will be asked to sign before resigning from their current job.
2. Read and understand before you sign
One might be surprised how many people admit (to their lawyer) that they did not read the non-compete the employer asked them to sign. It might be less surprising that people often claim they did not know the meaning of what they signed. But reading and understand a non-compete is not so difficult if people would take the time to study the obligations they are about to accept.
3. Negotiate important terms before accepting the job
Employees enjoy some bargaining authority over the terms of a non-compete only before they accept a job. Once an employee has resigned they are typically up the proverbial creek when it comes to negotiating the terms of a non-compete.
For example, many non-compete lawsuits involve an employer trying to bar an employee from working with customers who had a relationship with the employee prior to joining the company. Yet, so few employees negotiate with their employer in writing to carve out pre-existing client relationships from the scope of the non-compete (or non-solicitation provision) they are asked to sign. In plenty of cases, employees will claim that was part of the deal … just not reflected in the written contract. The oral exception is, however, almost impossible to enforce. The lesson: carve outs should be negotiated and expressly stated in the contract before the employee accepts the job.
4. Assume the agreement is legally valid
Most employers hire a competent lawyer to draft an enforceable non-compete. But employees always want to believe that the contract they signed is unenforceable. It is far better to assume the contract is enforceable and negotiate acceptable terms, than to sign a contract hoping it is invalid.
5. Disclose the agreement to a prospective new employer before interviewing
Want to make a new employer really mad? Just forget to disclose the non-compete you signed and let them find out in a demand letter from a law firm. It’s pretty hard to imagine a worse way to start a job. So make life easier and tell the prospective employer about the non-compete with the old employer before accepting a job. A lot of time and effort might be saved by disclosing the non-compete before agreeing to an interview.
6. Discuss the consequences of violating the non-compete with the new employer
I have worked with many employers (and employees) who entered into an employment relationship knowing that the employee had a non-compete with his or her former employer. The key is to understand the risks and agreeing upfront (in writing I strongly recommend) how to assign the financial consequences of those risks. The parties need to address questions like:
- Will the employer keep paying the employee’s salary if the employee is enjoined by a court from working for a period of time?
- Will the employer pay for the employee’s legal fees incurred fighting the non-compete?
- Who will bear the costs of damages being imposed against the employee?
7. Have a Plan B
It’s just good practice to be prepared for unforeseen contingencies. Employees should have an alternative plan in the event they are forced to live with a difficult non-compete.
I hope you enjoyed this newsletter and encourage you to share it with others.