What do you do if an employer asks you to sign a noncompete agreement before taking a job? Or, what if you’re hit with one after you’ve been hired? Do you sign it or dart for the door?
Unfortunately, there’s no easy answer. But as always, it’s advisable to educate yourself before signing anything. In this Tech Watch, I’ll talk about the logic behind noncompete clauses, what restrictions are usually included, why there seems to be no clear-cut way to enforce them, and whether it’s truly to your disadvantage to sign one for your employer.
The letter of the law?
While most states allow noncompete agreements—California is the only state that doesn’t—many states have difficulty enforcing them.
And although there is substantial confusion regarding noncompete clauses, there is sound legal logic behind them—the legitimate business interests of the employer, said Michael H. Diamant, a labor attorney heading the technology and computer group at Kahn, Kleinman, Yanowitz & Arnson Co. L.P.A. in Cleveland, OH.
Diamant offers a simple explanation: “Let’s say you’re flipping hamburgers at McDonald’s and you’re asked to sign a noncompete clause. No court will enforce it if you to decide to flip burgers for higher pay at Burger King across the street because no legitimate business interest is at stake.”
If you’re developing operating systems for Microsoft, however, they may not want you developing operating systems for a competitor. In that case, it makes perfect sense that Microsoft would ask you to sign a noncompete agreement.
As reasonable as that may sound, it doesn’t mean it’s a clear-cut case. The fact is that legally, an employer can’t ask you to sign a contract that would essentially prohibit you from earning a living. It’s a classic Catch-22: Employers have a right to protect their business interests, but they can’t prohibit anyone from working.
While businesses can’t restrict someone from being an engineer or programmer, they can attempt to prevent them from working for a competitor by having them sign a noncompete agreement, Diamant said. After that, it’s up to the courts to determine the business interest and define “competitor.”
You’ll never work in this town again
Often, noncompetes specify geographic restrictions, which might prohibit an employee from working at another organization in the same city. But even that can be contested.
“Geographic restrictions apply less to techies than to salespeople,” Diamant said. “It doesn’t matter where you’re living if you’re developing a competitive system to Windows, for example. But, if you’re a salesperson selling software for a Chicago company, the noncompete might restrict you from selling in the same state if you quit or are fired. But, if you take another sales job in New York, a noncompete with broad geographic restrictions is meaningless.”
Another common restriction concerns the length of time in which noncompetes can be enforced. For example, a noncompete might specify that you’re restricted from working for companies that develop the same or similar software for a set period of time. “Typically, one to two years is the guideline,” Diamant said.
Noncompetes generally seem to favor the employer’s interests over the employee’s, but they can also be altered to your benefit if the employer wants you badly enough. “If you have a high-demand skill an employer will kill for but you refuse to sign a noncompete, the employer may go along with it,” Diamant said. “Often, if the person is extremely valuable, the firm will back off the noncompete agreement and use stock options as an anchor.”
But what if you’re asked to sign a noncompete after you’re hired? Again, it depends on the state. Some states say that you can’t be fired if you refuse to sign a noncompete even after you’ve been hired. And, if you’ve already signed an employment contract, an employer can’t then turn around and ask you to sign a noncompete—the logic being that all conditions of employment should have been spelled out in the initial agreement.
The best advice is to read any noncompete agreement carefully. Better yet, have an attorney read it to interpret the fine print. If something seems unfair, negotiate for a change. If the employer wants you badly enough, they will likely change the parameters.
Did your employer require you to sign a noncompete agreement? Have you ever had to challenge a noncompete to move to another job? Begin a discussion below.