Tech & Work

Know the legal implications before signing a non-compete agreement

As one TechRepublic member learned the hard way, non-compete agreements can hinder future job opportunities. Find out how these agreements work and when they might be too restrictive to be legal.


Question
What can you tell me about non-compete contracts? I live in rural Michigan and am an at-will employee with a non-compete contract. It is my understanding that I cannot work for another VAR located in our three-county area if I am terminated for any reason. How legal is this?

Answer
Well, it all depends on the state you live in and what the agreement stipulates. The best advice I can give IT managers when it comes to non-competes is to consult a lawyer before signing.

If, as in your case, you signed without talking to a lawyer, the best approach is to find a lawyer in your area who specializes in this kind of law and get his or her advice.

Many employees don’t bother to read non-competes or to talk with a lawyer first to understand potential issues because it’s rare that a company will hire someone who won’t sign this kind of agreement. Most companies view the non-compete as a mandatory employment condition because it’s geared towards stopping employees from taking proprietary knowledge to a competitor.

In the IT industry, non-competes are often viewed as a valuable way to prevent current staff from leaving and hiring on with a competitor—which sounds like the situation you’ve found yourself in.

To help IT managers better understand what non-competes are and the potential ways to escape from signed agreements, I reached out to a few attorneys, including Carl Khalil, an attorney and founder of the Web site BreakYourNonCompete. This site provides good information on non-compete agreements and insight on how and when they are not legally acceptable or enforceable.

Ways to escape
According to Khalil, there are two basic ways to escape from non-compete agreements. The first is something evident on the face of the contract that makes it unreasonable or unenforceable under a given state law. In your case, the courts could look upon the ”three-county clause” as being unnecessarily broad if your company only does business in one county.

Another escape option is if an employer asks you to do something illegal and you are fired. In that situation, the non-compete contract is usually voided. Also, if an employer fails to live up to its end of a deal, say by failing to pay a promised bonus or by not delivering on profit sharing or some other benefit, the non-compete will be voided.

Khalil explained that other escape routes may be available, depending on the particular state a company is located in. For example, Michigan has its own statutes relating to non-competes.

“In the case of Michigan and select other states, there is a statute governing non-competes that allows the court to narrow an overbroad non-compete without striking it down entirely,” Khalil explained. Case law has held that a non-compete will be struck if it does not seek to serve a legitimate interest, such as protection of trade secrets or confidential information of the employer, but is merely being used to stop ordinary competition.

According to Michigan-based lawyer Donald Gasiorek, who I found using the helpful legal site My Employment Lawyer, time requirements or a lack of a time stipulation could negate an agreement because most courts won’t support agreements that continue forever.

However, Gasiorek said that agreements such as the one you described are usually enforceable in Michigan as long as the terms are reasonable.

“A court reviewing the terms would look to the time, scope, and geography of the restriction to determine if it is reasonable. If it is not reasonable, the court has the authority under the statute to unilaterally amend the restriction so that it is reasonable. For example, the court could reduce the time period from one year to six months.”

Think twice before you sign
The best bet is to get legal advice before signing so you know going into the job what the impact will be once you leave. In this particular member’s case, the non-compete is now limiting other potential IT management roles in the local area—a big job hunt issue if this IT manager isn't interested in relocating or doesn’t want a very long commute.

Even though the job market is tight in IT right now, many IT managers may not be interested in a job if they know about how it would impact future roles. That’s exactly why Michigan-based lawyer Brad Glazier recommends caution.

“Too many employees sign these agreements thinking or hoping that they will not be enforced. [If they are uncomfortable with the agreement’s requirements,] employees are usually better off refusing to sign or negotiating for an agreement that pays them during the non-compete period in the event of discharge,” said Glazier.

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