Freed from Career Shackles25 October 2006 Jeff Isaac
Lawyer Jeff Isaac looks at the many ways employment non-compete agreements can be rendered unenforceable.
Hundreds of thousands, if not millions, of working professionals throughout America have signed a non-compete agreement at one point or another during their career – not by choice but rather due to employer job requirements. Often, the bottom line is simple: sign the agreement as is or pass up the job opportunity all together.
By definition, a non-compete agreement binds the employee to not compete, directly or indirectly, with the employer and/or work for a competitor after termination of the employment relationship.
For courts, however, the definition and enforceability of this document is not so clear-cut. Such agreements are rife with legal loopholes and 'grey areas' contingent on their drafting and implementation, which can differ from one employer to another.
The merit of these documents can also vary from state to state, with some states – but not all – classified as 'right to work' territories, rendering some non-compete agreements null and void.
THE FINE PRINT
Far too many job-seekers do not read or fully understand the fine print of a non-compete agreement, nor do they know what constitutes one that is a rightful agreement versus a wrongful one.
While it is understandable that employers want to establish a measure of security against unfair competition by former employees, these documents are often far too restrictive with respect to the professional's right to earn income within the industry where their skills are most applicable.
How does an employee know if they are bound and restricted by a non-compete agreement they have signed? Here are some of the many shortcomings that can render a signed non-compete agreement non-enforceable:
Geographic scope: non-competes that have too large a geographic scope are more likely to be denied by the courts. While this is still subject to the court's opinion on the matter, an argument can surely be made if the region is covered by an all-encompassing non-compete agreement.
Duration: many states are more likely to void an unreasonable restriction than modify it. For example, if a two-year duration is specified in the agreement and the court considers this duration unreasonably long, it may nullify the restriction entirely rather than upholding it for a shorter duration.
Activity scope: if the employer has been too broad, relative to the activities it is attempting to restrict, then the courts are likely to rule in favour of the employee. Often, non-compete agreements are considered unreasonable if the intended scope is beyond that related to the company's direct competitors and established customers and/or clients.
Consideration of compensation: courts are also unlikely to enforce a non-compete agreement if the opportunity for adequate consideration was not provided at the time of signature. The odds are in favour of those required to sign a non-compete agreement well after the employment start date.
And, if the employee is already a part of the organisation, the agreement is not likely to be enforced by the courts unless the employer makes it apparent that it offered additional considerations – salary increase, improved benefits and so on – beyond the job, itself, in exchange for the constraints it sought to impose on the employee.
State and local laws: in some states, non-compete agreements are not legal and will not be supported by the courts. In California, for example, a non-compete agreement is only enforceable with respect to the sale of a business. Employers in this state cannot, restrict the livelihood of their current or former employees.
Departure considerations: whether or not a court will support the agreement might also depend on why you left the company. For example, if your employer fires you for a 'good cause' or if you leave to take a new job, it might be enforceable. But if your company fires you or if you resign for reasons beyond your control, such as company-wide layoffs, permanent disability and the like, the court may not enforce a duly signed non-compete agreement.
While some employers know all too well that their non-compete agreement is not enforceable in a court of law, many require new hires to sign one anyway, hoping the employee will not know the document is not legally binding, which may result in a state of mental servitude, or to intimidate the new hire in an attempt to protect the company's interests.
So, even if you have signed a non-compete agreement, do the due diligence to see what rights you do or do not have with respect to your specific draft of this so-called employment contract – you may be free to seek the employment you desire after all.