Non-competition agreements: be aware and be prepared

By July 1, 2014Featured

by: Elizabeth Petro
When being offered a job in industry, you may be asked to sign a non-competition agreement, or non-compete. In the non-compete, you agree not to work for certain other companies for a certain amount of time following the end of your employment.

In years past, noncompetes were restricted to certain limited situations. A well-compensated CEO, for example, might have been expected to sign a non-compete: as the public face of the company, the company could make a legitimate argument that associating that public face with a competitor could do real and lasting harm. Recently, however, more and more employees, even those who are entry-level and may not have access to a company’s secret plans, are being asked to sign broader and broader non-competes.

It’s clear how companies benefit from non-competes. Companies could be damaged by former employees’ leaking proprietary information to their competitors: although employees are often asked to sign non-disclosure or confidentiality agreements in addition, another easy way to prevent the leaking of proprietary information is to simply prevent their former employees from working for the competition.

Of course, even if former employees have integrity and don’t leak proprietary information, companies still benefit from non-competes, simply by keeping good employees from working for their competitors.

It’s also clear how non-competes can be bad for employees. Without non-competes, an employer might have to raise a good employee’s salary to keep them from taking a job at another company. With non-competes, an employee can be forced to choose between a job that doesn’t treat them well and leaving the industry for as long as five years. Recent research shows that more than thirty percent of tech workers who sign non-competes ultimately move to entirely different industries when they take their next job. For those of us who have invested years in pursuing specialized education and developing specialized expertise, such a move probably involves a pay cut, and the time gap could be detrimental to a future career in the original industry.

A non-compete agreement, therefore, is something for which new employees need to be on the lookout when considering job offers. Non-competes, however, are becoming so common that an employer might not think to mention it to you in your offer letter. In the above research, seventy percent of employees who eventually signed non-competes were told about them only after they had accepted the offer, and half of those were told only after the first day of work.

Just because an employer asks you to sign a contract doesn’t mean it’s legal. Whether a non-compete is legally enforceable depends on your location. In California, non-competes are generally illegal, and Massachusetts governor Deval Patrick recently proposed legislation to ban non-competes in technology and the life sciences. In Maryland, “reasonable” non-competes are still enforceable. Unfortunately, you won’t find out what counts as “reasonable” until your former employer takes you to court for violating the non-compete. Going by precedent, Maryland courts have upheld geographical restrictions as large as the US and Mexico and time constraints as long as two years.

So what should you do when facing a non-compete?

  1. Be psychologically prepared. Odds are good your industrial employer will ask you to sign a non-compete. Is employment in the short-term worth the risk of a career detour later if the employer turns out not to be a good fit?
  2. Ask. Just because an employer doesn’t mention non-competes in the interview or offer doesn’t mean you won’t be asked to sign one later. If signing a non-compete is an issue for you, be sure to clarify whether you’ll need to sign one before committing to a position.
  3. Move to California. (Or North Dakota.) Even if your old job wasn’t in California, non-competes are unenforceable there, so you can keep working there in your chosen industry, even if your old job made you sign a non-compete. But, as always, before making any important decision…..
  4. Consult a lawyer. Your career is worth it.

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