Agreements Not to Compete: Should You Sign on That Dotted Line?

Noncompete agreements are an increasing cause for raised hackles among employees moving on in the workforce. Will these controls hold up in court -- or are they meant solely to hold you down?

A growing number of employers are straining to stretch their control beyond the office compounds by asking employees to sign noncompete agreements promising that they will not work for a direct competitor. While some workers are asked to sign before being hired or while they still work for a particular employer, more are now being asked to sign them on the way out the door, when fired or when leaving for different pastures.

These concerns and attempts to control the future are more understandable and more often enforced where workers have access to sensitive business information or trade secrets. A trade secret is information that gives you a competitive advantage because it is not generally known and cannot be readily learned by other people who could benefit from it. It can be a formula, pattern, compilation, program, device, method, technique or process that an employer has made reasonable efforts to keep secret.

When employees with access to trade secrets leave -- either because they quit or have been fired -- their former employers may be concerned that they will use the information gleaned on the job to their personal advantages. For example, a former employee may open a competing business or may go to work for a competitor and unwittingly or deliberately divulge hard-won keys to success.

Whether a judge will enforce a covenant not to compete is always an iffy question. The legal system puts a high value on a person's right to earn a living. Covenants not to compete will not be enforced if they're found to be unreasonable. A covenant may be held unreasonable because it:

• lasts for too long
• covers too wide a geographic area, or
• is too broad in the types of business it prohibits.

The biggest and most often raised issue with noncompete agreements is how long a time an employee can be restrained from competing in a similar business. While there is no dyed in the wool guidance on what will and will not pass muster, courts and legislatures are beginning to set out some bounds as to what is reasonable. A good example is Florida's statute (Fla. Stat. §542.335), which sets out specific guidance as to the type and length of business matters that can be restrained after an employee leaves:

A noncompete agreement may also be found unreasonable because the information revealed to the worker isn't all that sensitive, so the restriction doesn't serve a valid business purpose. Judges are more likely to enforce restrictive agreements against high-level managers who truly are given inside information, on the theory that such former employees are in a position to do real harm.

If pressed, a judge may order an employee not to use the information even if he or she didn't sign a secrecy agreement -- if the former employer can show that what the employee took is truly a trade secret. This often involves establishing two things: that the information was not readily obtainable elsewhere, and that precautions were taken to keep it secret. For example, an employer who put together a valuable customer list that includes customers' buying history and buying habits must also be able to show that the list was painstakingly built up over several years and that only allowed a limited number of employees were allowed to see it.

Former employees who have signed noncompete agreements may face special hardships, as their job searches may become even more limited. And even those with solid job offers may face lawsuits by former employers -- often accompanied by a damaging court order forbidding you from working until the case is resolved.

When initially faced with signing a noncompete agreement, your best first step may be to negotiate some of the finer print with your employer. Here are a few pointers for crafting your arguments.

• If you are promoted to a new job that carries with it a request to sign a noncompete agreement, it is not too cheeky to ask for money to compensate you for signing. Keep in mind, though, that this will almost certainly prevent you from later claiming that the clause should not be enforced against you. Courts will likely point to your fattened wallet and conclude that you should not take in money for a condition, then claim it does not apply to you.
  
  
• If presented with a noncompete clause, demand to have it worded to take effect only if you leave the job voluntarily. This may make a job search less daunting for an employee who is fired or laid off.
  
  
• Ask for the prohibited competition to be clearly specified. Many employers, for example, will fear competition with only one or two specific companies -- and will readily name their names in your agreement.

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Checklist: Documents to Show an Attorney When You Have Been Fired

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Copyright © 2002 Nolo

Disclaimer

This publication and the information included in it are not intended to serve as a substitute for consultation with an attorney. Specific legal issues, concerns and conditions always require the advice of appropriate legal professionals.