Should You Sign a Non-Compete Agreement?

contract signing

In some occupations, such as technology and sales-oriented occupations, non-compete agreements are common. In essence, the employer is requiring you to promise that if you leave the company, you will not hire on with a competitor within a certain period of time. (Some are not so much time as distance focused. For example, it may say that you will not work with a competitor within a fifty mile radius of your current employer.) However they word it, the purpose is to keep you from taking ideas, sales leads, and clients to a competitor. They hope that by the time you’re allowed to work again that those things will no longer be relevant. It also keeps competitors from poaching each others’ employees. If a company knows that the employees won’t be able to work for them, there’s no reason to poach.

The argument against non-compete agreements is that they overly restrict a person’s right to pursue an income. If you’re locked into one of these agreements, you may find yourself literally unable to work in your field for a period of time. All of the protection is on the employer’s side.

So, should you sign one of these agreements? Like so many things in career and finance circles, it depends. If it’s the standard in your area/industry, you may not have a choice. And if you really need a job you might not have much choice, either. It’s either sign or not work. That doesn’t mean, though, that you can’t try to negotiate for more favorable terms. And, as with anything legal, you should at least have your own attorney look it over and explain it all to you before you sign. Here are some things to consider before you agree to a non-compete clause.

Is it enforceable?

Some states do not recognize non-compete agreements, but employers still try to bind employees with them. Consult an attorney to find out if such a clause is even enforceable in your state. Some states also restrict the type of wording that can be used, in essence rendering very specific/harsh non-compete agreements illegal. Again, consult an attorney who specializes in these things to find out whether the agreement you’re being offered is legal as written.

Is there an exemption if you are laid-off or fired

Many non-competes are only enforced if you leave voluntarily. Some are enforced if you are fired for cause because the employer doesn’t want you to “try” to get fired so you can dodge the non-compete agreement. Some offer an exemption, however, if you are laid-off through no fault of your own. It is unfair of a company to lay you off and then expect you not to work, yet some employers still try to enforce the agreement. Find out if that’s what you employer intends or if such a prohibition is legal in your area.

How long is the agreement?

How many months/years are they requiring you to remain out of your field. Six months? Two years? Decide if you can live with the length or not. Two years out of your field is a long time and you may find yourself so far behind that re-employment is very difficult. On the other hand, if you want to change fields anyway, it may not matter.

Will you receive money in lieu of being able to work?

Some companies offer severance money if you are laid off while under a non-compete agreement. They can still enforce the restrictions on your employment, but at least you are getting money. Find out how much money you will get and for how long. Will the package cover the entire term of the non-compete clause, or only the first six months, for example?

What about self-employment?

Is the agreement enforced if you leave to start your own business, or only if you go to work for an established competitor? You may want to leave to gain your freedom but if the agreement prohibits it, you may find yourself stuck.

How specific is it?

For example, does it say that you cannot work in sales for two years, or does it say that you cannot work in computer sales for two years? Even better does it say that you can’t work in computer sales for companies X and Y, leaving any other company as fair game for you? There’s a big difference between the wording and the less restrictive the wording, the better off you are.

What if the company goes out of business?

In some fields, companies go out of business at an alarming rate. If your company goes out of business, are you still bound by the agreement or are you free to do as you please?

What happens if you break the agreement?

Find out what will happen to you if you break the agreement, whether intentionally or not. Will you be sued? Forced to stop work? Will your new employer be sued? It’s best to know the consequences ahead of time.

Is it enforceable for your job?

Non-compete agreements are usually for employees who have access to trade secrets, or who are responsible for generating client leads and sales. They’re not usually for receptionists, janitors, and other employees who are on the periphery of the company’s main business. However, sometimes non-competes are standard boilerplate in the contract for all new hires. If you’re going to be working at a job where you aren’t dealing with secret information, business strategy, sales leads, or other crucial aspects of the business, ask if you can be exempted. It’s really unfair to tell a janitor at a computer company that he can’t be a janitor at another computer company and many judges won’t enforce such restrictions. However, get your lawyer to look it over or have the clause removed.

If you find anything objectionable in the agreement, you can try to negotiate it down or away. Some employers don’t bat an eye when you refuse to sign. Others may be willing to adjust the terms somewhat, particularly if you have a lawyer on your side who is telling them that clauses “X” and “Y” aren’t enforceable. If you’re not comfortable, simply explain why and then ask if it can be changed. If the answer is no, you’ll have to decide if you can live with it or not.

In some industries these are so common that people don’t even blink when asked to sign even the most restrictive agreements. It’s just the price you pay for working in that industry. You sign and hope you never have to butt up against it. In an economy where jobs are less common, you have to ask yourself if you want to sign. If you refuse you may be giving up the only job offer you’ll get for a while. At the same time, if you do sign and the economy improves or you become more in demand, you’ll be seriously limited if you want to hunt down a better offer.

Regardless of whether you ultimately sign or not, don’t do so without thinking it over. Don’t get so caught up in the new job excitement that you don’t take the time to read the agreement and understand what you’re agreeing to. Failure to think things through and/or negotiate better terms can have long term ramifications for your career.

(Photo courtesy of qwrrty)

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2 Responses to Should You Sign a Non-Compete Agreement?

  1. Pam says:

    I would never consider a Non-Compete Agreement. Its just a huge loss on your side.

  2. Smilernice says:

    I signed one once( as a stylist) when I was very young and living in a very small town. It stated I couldn’t work within 15 miles for a year after I quit. I would never sign one again! I had to go quite far when I outgrew the salon.

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