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Surging Economy spurs Non-Compete Issues

Four years ago, during what is now being referred to as the Great Recession, employees were glad to have a job. Forget about whether it was a recession, great recession or depression, we all knew that the s**t hit the fan. The equation was simple for most employees: no job = no mortgage payment + no car payment + lots of stress. It was not a time to take big risks. Those companies that could afford to grow took advantage of the job market. They found a considerable number of extremely talented employees in dire need of a job. Those same employers made sure that these employees were bound to non-competition agreements. There is nothing wrong with this approach. It’s good business. I warn employees to be cautious when entering into any agreement that limits a person’s ability to get a job. Employers and employees too often think that a non-compete agreement is just a routine form. It is not. More importantly, what is not addressed in the agreement can come back to bite you at a later date.

Now that the economy is making a comeback, employees are beginning to venture out into the job market. Suddenly, they realize that they signed a non-compete that prohibits them from working in a specific industry, in a specific geographical area for a limited duration (typically two to three years). The non-compete is not a problem if you plan on moving or changing career paths (I hear llama ranching in the Andes is popular at this time of year), but it becomes problematic when the job is across town with a competitor. The current employer, for obvious reasons, is not willing to release them from the non-compete. As the prospective employer, the non-compete also causes problems. Sometimes you are down to the final hiring decision before you learn of the non-compete or, worse, you have hired the employee and you get a letter from counsel for the previous employer alerting you of the existence of the non-compete. The prospect of the being brought into a lawsuit is not a good way to start a new relationship.

So let’s talk about how some of these issues should be addressed from the perspective of the current employer, the prospective employer and the employee.

A. The Current Employer.

  1. Do not use a cookie cutter approach to non-competes. These are restrictions on an employee’s ability to find work. Courts understand that you have the right to protect your business but Courts are not sympathetic when you use overly broad and general language in the non-compete. Your non-compete should be narrowly tailored.

  2. Annually remind employees of their obligations to your company. A good time to do this is during their annual evaluation. Provide them with copies of key documents they signed when hired on and have them acknowledge receipt. This does away with the “Gosh, I didn’t remember signing that??” excuse.

  3. Require employees, as part of the non-compete, to notify you of any new employment and grant you permission to contact the new employer to advise of the existence of a non-compete and any perceived violation of the non-compete.

B. Prospective Employers.

  1. Every person interviewed should be asked whether they are subject to a non-compete, non-solicitation and confidentiality agreement. Have the prospective employee provide it to you so it can be reviewed.

  2. Have the document reviewed by your legal counsel. The reasons why the document is being reviewed should never be given to the prospective employee. You don’t need your words twisted to make it sound like your company conspired with the employee to help them break the non-compete.

  3. Don’t underestimate the value of a face to face with the current employer. Sometimes, you can arrive at an agreement to waive enforcement of the non-compete if the employee’s duties are modified or they are not permitted to work in departments. When this happens there is usually a financial component to such an agreement, so make sure this employee is The One.

  4. If an employee lies about having a non-compete, end the relationship immediately. It is obvious they cannot be trusted and they will only be a source of future problems.

  5. Sometimes the hire is not in the cards. Deal with it.

C. Employees:

  1. Don’t burn bridges. I know that sometimes when you leave a job it may feel good to tell the boss how you really feel. Not a good idea. Especially, if at a later date, your new employer is going to see if the terms of the non-compete agreement can be relaxed.

  2. If you are interviewing for a job, provide the prospective employer with copies of the non-compete and don’t worry about not being hired if you produce it. What’s worse, not getting hired, or getting a job and then getting fired because you are in violation of a non-compete that you did not disclose? In the first circumstance you still have a job. In the second you gave up one job just to get fired from another.

  3. Have your lawyer review the non-compete and get his/her opinion on its enforceability. Hopefully you had your lawyer review the non-compete before you signed it.

  4. If an employer elects to hire you with knowledge of the non-compete get assurances they will provide a legal defense and indemnify you if your previous employer decides to sue to enforce the non-compete.

  5. Sometimes you are not working at a good place. I get that. Nevertheless, don’t put your financial and professional future at risk because you perceive an immediate need to leave. Remember the words of Erma Bombeck, “ the grass is always greener over the septic tank.”

Later, Rod

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