Noncompetition agreements (a type of contract known as a “restrictive covenant”) are far more commonplace in 2019 than they have ever been. Entry-level employees are regularly asked to sign them, frequently without knowing how they will affect their career down the line. These are very dangerous agreements; many times there are valid reasons for having them, but they can also be afterthoughts with wide-reaching implications for employees. I’m going to discuss several of the common mistakes made in negotiating and understanding noncompetition agreements by employees.
Some common employee mistakes are:
- Believing noncompetition agreements are unenforceable. There is a myth among many employees that ‘noncompetition agreements are not enforceable’ or ‘my employer never pursues anyone who leaves for a competitor.’ While noncompetition agreements were ‘disfavored in the law’ for most of their existence, the reality is that is not true today. I’ve seen employers try to enforce them against entry level employees and against employees who are truly no threat to the employer – almost always based on a generalized sense of distrust. If you treat the agreement as irrelevant and unenforceable, employers can become suspicious of your motives – which leads to unnecessary litigation.
- Signing without advice. Noncompetition agreements, or restrictive covenants of any type, are very dangerous documents. They limit your ability to work and make a living. You should never sign one without speaking with an attorney first. Do not rely on what the employer tells you (if I had a nickel for every client who said their boss told them ‘we never enforce these things . . .). Instead, talk to an attorney to understand exactly what you are getting into. These can be negotiated – and you should negotiate as narrow a noncompetition agreement as you can.
- Hiding in plain sight. Employees sometimes believe that if they just keep their heads down and below the radar, that their employer won’t find out about their new job or business. This trick never works. With the advent of the internet, and social media in particular, an employer who wants to find out where you are working and what you are doing will do so – and what they find always looks worse than the reality. If you’ve left an employer and have hidden what you are doing from them – or worse, have hidden a noncompetition agreement from your new employer – expect to be sued and expect at the very least to have a very uncomfortable discussion with your new employer. Even if you remain employed, your reputation and political capital will be shot. It is far better to be upfront and transparent with everyone – both your past and future employers – than it is to hope your new job won’t be discovered. A good attorney will help you craft a communication strategy for both the old and new employer, work with you to ensure your new job doesn’t violate your agreement, and help you stop litigation before it starts.
- Not keeping copies. If you sign a non-compete, keep a copy! If you have to go back to your employer later and ask for one, red flags will go off at every level. You won’t be able to review your rights and responsibilities without alerting your employer that you may be leaving, and causing yourself significant political risk at work. Your lawyer can’t help you without reading the agreement, so make sure you keep a signed copy in your records. Never rely on a co-workers’ document or the ‘form everyone signs.’ I’ve seen many clients caught out by language that is in their agreement and not others.
- Skeletons don’t help anyone. If you think your knowledge of where skeletons are buried will protect you from an employer’s noncompetition agreement, you should re-evaluate your life choices. Raising unrelated skeletons when confronted with a noncompetition agreement can lead to charges of extortion. A credible, ethical lawyer won’t raise these issues for you. Further, if an employer believes that you are stealing clients or intellectual property, they won’t worry about the skeletons – and you will have some trouble getting anyone to believe you if you raise them only in defense. You may cause some harm to the employer, but it will be a Pyrrhic victory at best.
The upshot here is that you should know what you are signing, negotiate precise terms, and be transparent from day one with yourself, your employer and your prospective employers. There are always solutions to the noncompetition issue – it’s better to work through them than to hide or charge ahead without a plan.