Non-Compete agreements have become increasingly popular in the business world over the past few years. Most people in the corporate world have at least heard of them, if not signed them. Unfortunately, very few individuals understand the legal implications of signing a non-compete.
Non-Compete agreements can take the form of separate agreements as well as be built into standard employment contracts. Employees might also be required to sign Non-Compete agreements in the event of a promotion or before receiving severance post termination. Although it might be tempting to sign a Non-Compete without going over it in detail, it is worth taking the time to review it with a lawyer, since failure to do so might seriously damage your career.
As a business owner, including a Non-Compete provision within your contract is quite straightforward. You should include a Non-Compete if you are concerned about loss of vital business information to competitors. Standard Non-Compete clauses and jargon can easily be found online, and more businesses are including and enforcing such agreements. However, you should always review the agreement with a lawyer.
What is a Non-Compete?
Simply put, a Non-Compete imposes an obligation on the employee not to engage in a business, or provide service to a business, like the one that they provide to their current employer. This safeguards the interests of the employer since they are secure in the knowledge that trade secrets related to their business operations will remain confidential upon the employee’s termination or resignation. Typically, non-compete agreements will be defined by geographical radius and time.
Types of Non-Compete Covenants
Non-Compete covenants can take three main forms:
- General Non-Compete - This is your traditional non-compete agreement in which employees are prohibited from joining other competing businesses during a specified time and in a particular geographical area. These businesses are usually identified by name or industry.
- Non-Solicitation Agreements: These agreements specifically prevent employees from poaching other employees of the company that they worked for, or striking deals with their former company’s suppliers.
- Non-Disclosure Agreements: These prevent former employees from disclosing sensitive information like marketing strategy, product formulations, etc.
Red Flags in a Non-Compete
- Too Broad: Be wary of all-encompassing Non-Compete provisions which seek to prohibit you from working in positions which are in no way related to what you were doing for the employer. An example of an unreasonably broad provision would be if a person who was employed as a teacher is prohibited from working in the educational sector completely, even if it is in a completely new role. In such cases, the employee should argue that the restriction should be limited only to teaching positions.
- Unspecified Time and Geographical Limits: It is only reasonable for an employer to restrict an employee’s job prospects for a limited period of time and in a limited space. What constitutes reasonable will vary according to the industry. For instance, for retail positions, a smaller geographic radius and shorter period of time would be appropriate. By contrast, for high level executive positions, the area covered can often span multiple states and the time covered can be as long as 2-3 years! Before agreeing to a Non-Compete, decide what time, and space limits you can adhere to in the event of being offered another job.
- Pressure to Sign Immediately: Employers are on a strict timeline and its understandable if they want you to make up your mind about employment within a reasonable span of time. However, employers not allowing enough time to think over the terms of the Non-Compete or to consult an attorney should be a red flag. Make sure you request enough time to thoroughly understand the ins and outs of the agreement before striking a deal, no matter how significant the pressure.
- Compulsory Arbitration: Some Non-Competes will mandate arbitration in the event of a dispute.
- Career Stifling Stipulations: Be clear about what your career goals are. If the agreement seems to be overly restrictive or getting in the path of your future career goals, be sure to request revisions.
What Do the Courts Look at Before Deciding if a Non-Compete is Reasonable?
- Negative Impact for the Employer: The burden of proof for establishing harm to the employer rests on the employer himself.
- Time Period: As mentioned above, this will depend on industry norms. However, its is safe to say that Non-Competes that extend for an indefinite period will be deemed unreasonable.
- Geographical Range: Again, this is industry and profession specific. Anything more than ten miles is probably unreasonable for a barber, whereas a multiple state region may not be unreasonable for an executive.
- Impact on the Employee: Is the Non-Compete such that it would leave the employee without any options to earn a livelihood, or force relocation? In most cases, courts will take this into account when determining reasonability. Exceptionally, some states do not take this into account at all. Florida is one such example.
- Public Interest: Although it is acceptable for Non-Competes to be used to protect the employer’s businesses, this should not be done at the expense of pushing out competition and establishing a monopoly, since that is against public interest.
In conclusion, although non-competes become more restrictive with seniority, it is possible for a beginner to get stuck with unfavorable terms if they end up signing too broad of an agreement. It is always in everybody’s best interests to consult a lawyer before making important decisions. Feel free to contact The South Texas Business Lawyers for all your legal needs!
Disclaimer: This article is made available for educational purposes only, to give you general information and a general understanding of the law, not to provide specific legal advice. By using this article, you understand and acknowledge that no attorney-client relationship is formed between you and The South Texas Business Lawyers, nor should any such relationship be implied. This article should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.
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