Even if you’re not in the job market right now, pay some attention to the growing pressure on employees to sign non-compete agreements. It’s more than just a new-job issue: You might be confronted with a new non-compete form by your current employer when you’re getting a raise or promotion – you might even be asked to sign one in order to get severance if you’re fired.
Non-competes became the stuff of headlines because more businesses are requiring the agreements – and enforcing them – even for such non-corporate, non-executive jobs as yoga instructor, camp counselor and office intern. In one report the Wall Street Journal found a 60% increase in the numbers of ex-employees sued by employers for breaching non-competes. And in early February 2016 it reported on journalist Stephanie Russell-Kraft, forced out of work at a different company by a non-compete she'd unwittingly signed when hired for her first job. New York Attorney General Eric Schneiderman is reputedly investigating the practice, the Journal added.
Recently, employers who hadn’t been using non-competes have been considering whether they should start to do so. It’s free and easy to download lawyerly wording right off the internet.
This growing use is not without controversy. Work by two university professors has shown that non-competes tend to limit job mobility, accelerate talent flight and discourage venture-capital investments in areas that enforce them. Massachusetts Governor Deval Patrick became so convinced that widespread use of the restrictive agreements was bad for business in his state – particularly the high-tech firms that had famously clustered around Route 128 – that he proposed legislation to ban non-compete clauses in employment contracts. A similar bill has been introduced in New Jersey. Here’s what these changes in the business climate mean to you.
You Get the Job Offer: Here’s the Non-compete
Don’t sign and accept on the spot – though chances are you will be tempted. Do ask for a copy of the agreement to take away for review while you think about the job offer and what your starting date might be. You’ll probably feel some pressure, but try to resist it.
The Winona Search Group, Minnesota-based recruiters in technology fields, puts this observation right up front on its website: “As a candidate you generally don't have the bargaining power that the employer has when it comes to non-competes. General objections to signing non-competes can end up being red flags for employers.” Your response should be reasonable and informed, not a blanket "no."
“Which is why we talk the candidate through it,” says Bryan Crigler, Winona Search’s director of marketing and recruiter in social media/data analytics. “We have legal support to review and evaluate the document and advise on particular situations.” Often you can get a custom-tailored contract that works better for you.
Do You Need a Lawyer?
Not necessarily. If you feel you understand what’s at issue and are not confused by the wording of the document itself, and the contract seems fairly balanced, and if this is the job of your dreams, you may decide to do what many people do: Sign on the line and hope for no problem.
But please, read the rest of this article first, including what a legal consultation will cost. And be sure to keep a copy of whatever you sign, for it may become relevant down the road – for instance, when you are considering changing jobs, or if the company that hired you is merged into another firm or if you are laid off.
A Crash Course in “Covenants Not to Compete”
A “covenant not to compete” (CNC), or non-compete contract, is governed by state rather than federal law, and the general term covers three aspects.
– Traditional non-competes prohibit the employee from joining competing business(es) identified either by name or description, during a specified period of time and within a defined geographical area.
– Non-solicitation agreements bar approaching customers, poaching employees and/or wooing suppliers of the former employer.
– Confidentiality agreements (non-disclosures) prohibit using or revealing information the former employer wants to keep private, which may be product formulations, client lists, marketing plans or some other proprietary information.
It’s clear that what employers are worried about is protecting their businesses. But a CNC may go too far in what it bans. Generally, a court’s view of what is reasonable will rest on these five points:
– Potential harm to the employer. The employer has to establish this, not you.
– The specified time period. In the eyes of the court, three to six months for a yoga instructor might be reasonable, but as much as two years or even five years could be seen as appropriate for a key executive.
– The prohibited territory. Up to ten miles away might be fine for a hair salon, but a three-state area could be acceptable for a sales manager.
– Impact on the employee. Will it deprive him/her of making a living or force a relocation in order to use his/her experience and skills? Some states’ courts weigh this point more heavily than others. Florida law – an outlier in this – prohibits even considering it in deciding non-compete cases.
– And, finally, the interests of the general public. A covenant that severely stifles competition to the point of creating a monopoly might not be acceptable, for instance.
Courts will not honor provisions that they deem “unreasonable,” a point you may make in negotiation. There is, however, wide variation state to state and even in what individual courtrooms enforce, so unless you have expert advice, it’s safer not to expect this to protect you.
“Strange as this may sound, the strongest non-compete agreements are the ones that are the most narrowly tailored,” says Craig Trepanier, of Trepanier MacGillis Battina P.A. in Minneapolis. For example, a non-solicitation agreement that prevents the employee from soliciting or doing business with his or her former customers for 12 months is much easier to enforce than a non-compete agreement that prevents the employee from working for any competitor for 24 months.
Philadelphia attorney Michele Grant, who represents many authors, actors and performers, as well as professionals in other fields, advises her clients to challenge non-competes. She urges that everyone “should try to bargain – the worst they’ll hear is no, at which point they’ll have to decide whether it’s a deal breaker.
“In my view, workers need to step up and challenge non-competes in industries where they don't make sense,” Grant says. “High-level sales, extremely skilled professional positions in cutting-edge technology – that's where non-competes belong.”
Negotiating Your Contract
First, focus on what you want to accomplish. If the employer is a local small business and you are talking with the owner, ask about where the non-compete document came from (the document isn’t truly a “contract” until both parties have agreed to it). Did a lawyer prepare it for the business or was it downloaded from the internet? If it’s a one-size-fits-all online form, discuss it point by point in the spirit of working out an agreement to your mutual benefit and eliminating excess baggage. To do that, of course, both parties have to know what their benefits or disadvantages are.
Try to determine what the company’s real concerns are. A competitor hiring you away to pirate their client list, perhaps? A non-solicitation clause can cover that worry without the additional scope of the document. Is it that you’ll leave to go to a competitor taking business secrets with you? Suggest that you sign a non-disclosure agreement but without the geographic limitation. Or you might argue to shorten the time period, for instance, by pointing out that with your student loans, you can’t afford to be out of work for six months, but a six- to eight-week period seems fair. Try to add a sentence saying that if you are laid off through no fault of your own, the agreement no longer applies.
Contracts work two ways, binding both parties. Ask for assurance in the document that as you gain experience with the company, you will regularly be considered for raises and promotions, so that you are not stuck at your entry-level salary, trapped by a non-compete. Do not be reluctant to stick to plain language rather than legal-sounding terms you may not understand.
If the employer is a large corporation, chances are the document was prepared by a big-time legal department, but you can still make your case to the Human Resources officer or a company lawyer. And remember, it helps in any negotiation to know at what point you are willing to walk away from the deal.
Another time to consult an attorney: If you're asked to sign a non-compete as a condition of getting severance when you're being terminated. In fact, it's useful to get legal advice before signing anything during a layoff or termination.
The situation is, of course, even more delicate if the non-compete shows up when you're being offered a raise or promotion. Some states require that you receive something extra – more vacation, for example – if you're asked to sign such a clause when you're already an employee of a company. In that situation, too, it's worth taking the papers home and consulting an attorney before you sign.
Finding a Non-compete Lawyer
Be sure any attorney you consult is an expert in non-competes. Check out local legal clinics where fees are likely to be rock-bottom. If they’re weak on employment law, you can browse superlawyers.com by areas of practice state by state; findlaw.com has listings by top city, county and metro areas. Ask for a referral from the National Employment Lawyers Association. A ballpark figure in most parts of the country is $300 to $500 per hour for consultation, but there is some variation; call a few attorneys to get local fees for this type of case.
Craig Trepanier, of Trepanier MacGillis Battina P.A. in Minneapolis, charges a flat $500 fee for a two-hour case evaluation and initial consultation. An attorney will go over your non-compete document and answer your legal questions to prepare you to negotiate on your own behalf. A written report would cost more, and any charges to negotiate for you would be by separate agreement.
Colin M. Page, a labor attorney in Mountain Lakes, N.J., estimates that a conversational discussion (by phone or face to face) would take one to two hours, costing $300 to $600. Giving you his written opinion would require another few hours. (He considers requests for free consultations submitted via a form on his website.)
At the Grant Law Firm in Philadelphia, you can have a free 30-minute consultation by appointment. If more time is needed, Michele Grant or one of her colleagues will bill you hourly or, by agreement, on a flat-fee basis. Michael S. Haber, an employment lawyer in New York City, includes a written memorandum with the consultation when he reviews a non-compete clause and estimates it takes two to three hours.
Recruiter Bryan Crigler says adjusting an agreement may be easier than getting out of signing a non-compete entirely – though he has seen that happen “when the candidate is very, very desirable.” It’s part of his role to help the client who is hiring reach an agreement with the candidate.
But there are times when it pays to work directly with a lawyer with the right expertise – “when the stakes are very high,” as Crigler puts it.
Attorney Michele Grant gives an example. “I recently helped a medical professional successfully negotiate a non-compete more favorable to the employee. The original agreement restricted working within a wider radius than was reasonable and restricted treating a certain type of patient.
“In the heavily populated metropolitan area involved, both of these clauses were completely unreasonable because there are plenty of patients to go around,” Grant says. “Taken together, the clauses would have prevented my client from working in any hospital in the region.
“If my client hadn't challenged the non-compete, it would have hampered their professional development and marketability,” she says. “Non-competes will only get broader and more ‘over-lawyered’ unless workers challenge them.”
From Minneapolis, Craig Trepanier adds a hopeful note. “In my experience practicing non-compete law for the past 20 years, the amount of non-compete litigation tends to heat up as the economy improves. With a growing economy, more employers are hiring, there is greater competition for the best employees, workers gain confidence to make a career move and the parties have the money to pay for litigation if a legal battle ensues. From that perspective, the increase in non-compete litigation might signal improvement in our economy."
The Bottom Line
The non-compete can certainly become a clause for concern, for it’s the basis for possible litigation against you. Much depends on where you are in your career, but even a beginner can lose control of choosing his or her next job by signing a broadly restrictive contract and should consider negotiating to narrow it. Mid-level or well-established professionals usually should work with a lawyer to customize the agreement so that it’s not too great a burden on their career future.