Reading the Fine Print
Non-compete clauses can give you plenty of trouble, but the worst obstacles can be avoided
By Matthew Crumpton, Esq. |
|
On the first day of his new job, John's eyes began to gloss over as he sat at a table in the human resources office signing a stack of seemingly meaningless documents. One of those documents said something about "covenant not to compete" and some other legal mumbo jumbo. Excited to have the job with this employer and not planning on competing any time soon, John signed the paper without giving it much thought. Three years later, John was unhappy with his job and had offers from several other companies doing similar, but not exactly the same, work. He didn't think twice about some random document that he didn't even remember signing when he left for greener pastures and took another job - until he received some nasty letters in the mail from big law firms on fancy letterhead, threatening to do all sorts of terrible things to John.
A non-compete agreement (sometimes called a "covenant not to compete") is a (sometimes) legally enforceable promise by an employee to not work for a competitor of the employer after his or her employment is over. The non-compete usually has geographic (in mileage, counties, or states) and time limitations. For example, it might say "Employee agrees to not compete in the state of Ohio for 3 years."
Young professionals, especially those who are fresh out of college or grad school, are frequently targets of these non-compete lawsuits. In a difficult economy, many companies are vigorously enforcing their non-compete agreements to stop their former employees (like John) from working for competitors. Young people are negatively affected because one of the key considerations made by a court in deciding if a non-compete agreement is enforceable is whether the employee had experience in the industry other than working for the employer who is trying to enforce the non-compete. For young professionals just beginning a career, the answer is usually no.
For a non-compete agreement to be enforceable, it must protect the employer's legitimate business interest, not cause undue hardship to the employee, and not be injurious to the public. In deciding whether to enforce the non-compete, courts look at whether the employee possessed confidential information, whether the employee could find work if the agreement is enforced, and whether the employee had pre-existing skills that were not developed while working for the employer. Even if a non-compete is enforceable, courts will often decrease the length and geographic scope of a non-compete.
So what should you do if you find yourself reading a cease-and-desist letter (or as lawyers call it, a "nastygram") with your name on it? See a lawyer with experience in non-compete agreements ASAP. (I know, that sounds self-serving coming from a lawyer.)
The worst thing that you can do is to ignore it, especially if a lawsuit is filed. If you fail to respond to a complaint or any other court document, you could make yourself liable for violating a court order, even if you would otherwise win in court.
You may be able to settle with your former employer, especially if you are not soliciting the same clients as your former employer and did not take any confidential information. If you are not able to settle, your former employer will either 1) sue you or 2) hold the threat of a suit over your head. If you are sued, you can expect a long and very expensive battle that often does not end well for the employee. Another possibility is that you could ask a court to give a declaratory judgment that the non-compete is not valid.
The best way to solve non-compete problems is to negotiate the non-compete when you sign it. While many employers are not willing to change their standard terms, they may be willing to phase out the non-compete over a period of time, depending on how valuable you are to the company. If you are considering leaving your current employer, ask to see your employment file so that you can determine if you signed a non-compete, and what it limits you from doing. All non-competes are not the same, and you may still be able to work in a similar field.
With a little caution, a few proactive steps, and actually reading the documents that you sign, you may be able to get a better job, while avoiding pesky nastygrams and lawsuits.
Matthew Crumpton, Esq.
Crumpton Law LLC
1441 King Ave., Suite 109
Columbus, Ohio 43212
(614) 561-6161
www.crumpton-law.com
Matt Crumpton is the managing partner of Crumpton Law LLC, a firm with practice areas of business, music and entertainment, non-profit law, and litigation (including non-compete cases). You can visit his website, www.crumpton-law.com, where you can find his cutting edge video greeting.
Originally Published: October 1, 2009
