LawyerGuys / EmployerGuys - Non Compete Agreements? (1 Viewer)

[Joe Bryant]

Have a friend whos son graduates college this year and is looking at potential employers. 

Received a job offer in the logistics field working as a broker for trucking freight and it has some pretty restrictive non compete language in the contract. Can't work for another company in the industry for 2 years if he leaves. That kind of stuff.

Of course, it's all about the details but in general, what is the thought on these things?

I've never used these an employer. I think they're lame. But I know many employers do use them. 

How enforceable are they?

Is it common or expected that employers ask for a very restrictive non compete and the prospective employee counters?

 

[Todd from Utah]

Not a lawyer, but generally, they're not enforceable. (at least in my limited experience. Obviously it will depend on language and jurisdiction)

Also, even trying to put one on a kid straight out of college just seems really weird and incredibly punitive.  Its not he's some high level executive (who might be poached and bring trade secrets)  or in an industry where he could take clients with him if he left (I work in insurance and we see this a lot with producers/sales people. Agencies dont want them to leave and take their book of business with them, which is reasonable)

I get trying to do this with an established professional in certain industries. But an entry level kid at a freight broker? Just makes absolutely no sense at all.

 

[CletiusMaximus]

Unfortunately, the answer is that the enforceability is highly state-dependent, and also depends on the specific language used in the document.  Without those two pieces of info, I think the most anyone can tell you is that they are enforceable and are to be taken seriously in some states, particularly in certain industries and with certain companies. Its a lame answer I know, but I think that's the best wwe can probably do here based on the info available.  @bigbottomknows this stuff better than I.

 

[krista4]

Unfortunately, the answer is that the enforceability is highly state-dependent, and also depends on the specific language used in the document.  Without those two pieces of info, I think the most anyone can tell you is that they are enforceable and are to be taken seriously in some states, particularly in certain industries and with certain companies. Its a lame answer I know, but I think that's the best wwe can probably do here based on the info available.  @bigbottomknows this stuff better than I.

Yes, this.  Absolutely state-specific.  In California, for instance, basically unenforceable.  In most other jurisdictions they’re enforceable if tailored enough in geography, time, and other matters.  You mentioned a two-year term, which is just about the outside you can get away with in an employment context.  Is it also limited in geography?  Saying he can’t compete anywhere in the US, for instance, isn’t going to be enforceable.  
 

To your question about negotiating it, the answer is a huge YES.  I work with non-competes every day and most everyone negotiates them.  
 

Again, bigbottom is the expert here on employee non-competes (mine are more in a transaction rather than employee context).

 

[stbugs]

Not a lawyer, but generally, they're not enforceable. (at least in my limited experience. Obviously it will depend on language and jurisdiction)

Also, even trying to put one on a kid straight out of college just seems really weird and incredibly punitive.  Its not he's some high level executive (who might be poached and bring trade secrets)  or in an industry where he could take clients with him if he left (I work in insurance and we see this a lot with producers/sales people. Agencies dont want them to leave and take their book of business with them, which is reasonable)

I get trying to do this with an established professional in certain industries. But an entry level kid at a freight broker? Just makes absolutely no sense at all.

A kid out of college won’t even raise an eyebrow if he leaves. As long as he’s smart* it likely wouldn’t matter. As you said it’s more for people who could be leaving with intellectual property (not stealing, just process knowledge that’s not patentable). The reason why he got it is because once a company sets it in place, they just make it a blanket policy.

*By smart I mean don’t tell everyone where you’re going or post about it in FB, etc. Might be more difficult to hide it on LinkedIn but again, just be smart about who you tell. Oh, I’m going back to business school or I’m going to work with family. Whatever, it’s not like you have to tell the former employer anything.

 

[FBG26]

Adding a little to what the others have said, one thing to consider is whether it's a non-compete or a noon-solicitation. Does it say he can't work for a competitor or that he can't solicit clients/colleagues if he leaves. If it's just the latter, I wouldn't worry about it at all at that stage of his career since a person with 3 years of experience isn't going to be taking clients with him when he leaves. 

 

[Ron Swanson]

logistics field working as a broker for trucking freight

You've already got the right answer from the lawyers. As far as the "why", it's because of this job.  This is a business that is all about building a book of business and using it as negotiation leverage with the current employer or moving it with you.  I suspect it stems from the fact that most of the jobs are highly commission structured. Sounds like the broker he is interviewing with has been burned by this practice.  If the broker has adapted his pay structure to accommodate this in the employee's favor it might be an OK deal.  But if the broker is offering the same structure as competitors but the kid can't move I would be very leery.

And, yeah, they are lame.

 

[Judge Smails]

One of the benefits of being in CA.  We laugh at those.  But with other states as posters have said it's much different.  Permitted in most states in some form other than CA, SD, OK.  Varies widely by even states where it's allowed.  Good info by state here

https://www.beckreedriden.com/50-state-noncompete-chart-2/

 

[whoknew]

A lot of people have covered the legal part and, as everyone has said, bb is the expert.

I just want to pipe in that this is super lame of that company. A kid coming right out of college and you are going to slap him with a 2 year non-compete for an entry level position? That sucks. And, if I were him and had other options, I would not go there.

 

[E Street Brat]

"Inside The Stats" finally getting some traction?

 

[bigbottom]

Sorry for the delayed response. I’ve litigated a bunch of non-competes in multiple states, sometimes enforcing them, sometimes busting them. The key points have already been raised. 

1) What state?  As noted, laws vary greatly from state to state. Completely unenforceable in some states, definitely enforceable if the restrictions are narrowly tailored in other states. 

2) What are the specifics of the restrictions?  We know that it’s two years (more on that below), but is there a geographic scope?  If so, what is it?  Is it limited to the market served by this particular employer?  Also, what is the precise scope of activity to be restrained?  Is it he can’t work at all in a broadly defined industry?  Or is it narrowly defined to performing a particular service within that industry?

3) Krista is right, 2 years is about the maximum you can go with a non-compete in the employment context. And that’s pushing it in many jurisdictions. Often the key on duration is proving that the shelf life/value to a competitor of the purported confidential information to which the employee has access during his or her employment lasts for a long period of time. This will largely depend on the specific details of the company and the job in question. (Note that non-competes in the transactional (non-employment) context can be enforceable for longer periods of time.)

4) Non-competes often are lame. But sometimes they are anything but. It really depends on the situation. 

5) The prevailing view that non-competes are unenforceable is not correct as general rule. It depends on the jurisdiction (state), how narrowly tailored the restrictions have been drafted, and whether the restrictions are designed to protect a legitimate interest of the employer (as opposed to being simply anti-competitive). As already mentioned, if you’re in California, or South Dakota, or Oklahoma, yeah, they’re unenforceable. But I’ve had courts issue orders enforcing them a bunch of times in other states (I’ve also busted them or had them dramatically pared down by courts).

6) I wouldn’t assume that because it’s an entry level position the employer wouldn’t sue to enforce the non-compete if he left. If I’m defending against the enforcement of a non-compete, one of the first things I’m going to determine in discovery is whether the company has been consistent in seeking enforcement of its non-competes for others who have left. Because if they’ve let some people violate the non-compete, but are trying to enforce it against my client, it makes it a lot harder for the company to argue that enforcement is supported by a legitimate business interest (e.g., protecting confidential information or specialized training) as opposed to being anti-competitive (e.g., my client can hurt them competitively so let’s go after him). For this reason, some employers have a hard rule that they will consistently seek to enforce their non-competes (also, taking this consistent position sends a message to the workforce that the company expects employees to abide by their contractual obligations).

7) Finally, yes, your friend’s son can try to negotiate the terms of the non-compete, or negotiate it away entirely. But that depends on how bad they want him and what leverage he has. But I’ll say that companies are often loathe to make exceptions with respect to their non-competes for the reason that it undermines the enforceability of non-competes for other similarly situated employees. 

 

[Joe Bryant]

Sorry for the delayed response. I’ve litigated a bunch of non-competes in multiple states, sometimes enforcing them, sometimes busting them. The key points have already been raised. 

1) What state?  As noted, laws vary greatly from state to state. Completely unenforceable in some states, definitely enforceable if the restrictions are narrowly tailored in other states. 

2) What are the specifics of the restrictions?  We know that it’s two years (more on that below), but is there a geographic scope?  If so, what is it?  Is it limited to the market served by this particular employer?  Also, what is the precise scope of activity to be restrained?  Is it he can’t work at all in a broadly defined industry?  Or is it narrowly defined to performing a particular service within that industry?

3) Krista is right, 2 years is about the maximum you can go with a non-compete in the employment context. And that’s pushing it in many jurisdictions. Often the key on duration is proving that the shelf life/value to a competitor of the purported confidential information to which the employee has access during his or her employment lasts for a long period of time. This will largely depend on the specific details of the company and the job in question. (Note that non-competes in the transactional (non-employment) context can be enforceable for longer periods of time.)

4) Non-competes often are lame. But sometimes they are anything but. It really depends on the situation. 

5) The prevailing view that non-competes are unenforceable is not correct as general rule. It depends on the jurisdiction (state), how narrowly tailored the restrictions have been drafted, and whether the restrictions are designed to protect a legitimate interest of the employer (as opposed to being simply anti-competitive). As already mentioned, if you’re in California, or South Dakota, or Oklahoma, yeah, they’re unenforceable. But I’ve had courts issue orders enforcing them a bunch of times in other states (I’ve also busted them or had them dramatically pared down by courts).

6) I wouldn’t assume that because it’s an entry level position the employer wouldn’t sue to enforce the non-compete if he left. If I’m defending against the enforcement of a non-compete, one of the first things I’m going to determine in discovery is whether the company has been consistent in seeking enforcement of its non-competes for others who have left. Because if they’ve let some people violate the non-compete, but are trying to enforce it against my client, it makes it a lot harder for the company to argue that enforcement is supported by a legitimate business interest (e.g., protecting confidential information or specialized training) as opposed to being anti-competitive (e.g., my client can hurt them competitively so let’s go after him). For this reason, some employers have a hard rule that they will consistently seek to enforce their non-competes (also, taking this consistent position sends a message to the workforce that the company expects employees to abide by their contractual obligations).

7) Finally, yes, your friend’s son can try to negotiate the terms of the non-compete, or negotiate it away entirely. But that depends on how bad they want him and what leverage he has. But I’ll say that companies are often loathe to make exceptions with respect to their non-competes for the reason that it undermines the enforceability of non-competes for other similarly situated employees. 

Thanks @bigbottom #6 seems important as he did say the guys he knows at the company said they'd never heard of anyone that left the company having any legal enforcement action from the employer. So if I'm understanding right, that's a plus for the employee. 

 

[bigbottom]

Thanks @bigbottom #6 seems important as he did say the guys he knows at the company said they'd never heard of anyone that left the company having any legal enforcement action from the employer. So if I'm understanding right, that's a plus for the employee. 

Absolutely.  If they signed up a bunch of employees to non-competes and let them violate them when they left, and then turned around and tried to enforce it against a departing employee, I think they’d have a tough go of it in court (depending on the jurisdiction).  That said, your friend’s son should be aware that when he goes and interviews for that next job, he will likely be asked about whether he has a non-compete, and some prospective employers may steer clear regardless of ether the employer has a history of seeking legal enforcement. In that situation, he may have to ask his employer for a waiver.

 

[Joe Bryant]

Absolutely.  If they signed up a bunch of employees to non-competes and let them violate them when they left, and then turned around and tried to enforce it against a departing employee, I think they’d have a tough go of it in court (depending on the jurisdiction).  That said, your friend’s son should be aware that when he goes and interviews for that next job, he will likely be asked about whether he has a non-compete, and some prospective employers may steer clear regardless of ether the employer has a history of seeking legal enforcement. In that situation, he may have to ask his employer for a waiver.

Gotcha. Thanks GB.

 

[moleculo]

My company had us sign a non-compete about 6 years ago because 4 or 5 people left to go to a competitor. It wasn't a big deal to me at the time because I didn't care for the folks who left - I wasn't going to work with them anyways. I think they gave us like $500 at the time to sign.

A few weeks ago, one of my co-workers left to go to a company that is in the same general field, but not a competitor. She asked Legal for her non-compete just to make sure she would be fine, and they couldn't find it (been a lot of turnover in HR and Legal since then).

Yesterday, my boss asked me to sign a fresh non-compete, with no incentive to sign.

Here's the problem - morale is extremely low at my company. We are at the point where most of the key people are openly talking about interviewing and what kind of jobs they are seeing out there; myself included. I absolutely don't want to limit my job search because of a non-compete. Part of it isn't just restricting from a potential employer, there's language in there about not talking disparagingly about my present company, hurting the morale (lol) of existing employees, encouraging others to leave as well, etc. Screw that, I won't be muzzled.

Thinking about just refusing to sign, and I don't think I will be the only one.

My wife knows a local employment attorney - think I'm going to have him review and advise.

 

[Psychopav]

My company had us sign a non-compete about 6 years ago because 4 or 5 people left to go to a competitor. It wasn't a big deal to me at the time because I didn't care for the folks who left - I wasn't going to work with them anyways. I think they gave us like $500 at the time to sign.

A few weeks ago, one of my co-workers left to go to a company that is in the same general field, but not a competitor. She asked Legal for her non-compete just to make sure she would be fine, and they couldn't find it (been a lot of turnover in HR and Legal since then).

Yesterday, my boss asked me to sign a fresh non-compete, with no incentive to sign.

Here's the problem - morale is extremely low at my company. We are at the point where most of the key people are openly talking about interviewing and what kind of jobs they are seeing out there; myself included. I absolutely don't want to limit my job search because of a non-compete. Part of it isn't just restricting from a potential employer, there's language in there about not talking disparagingly about my present company, hurting the morale (lol) of existing employees, encouraging others to leave as well, etc. Screw that, I won't be muzzled.

Thinking about just refusing to sign, and I don't think I will be the only one.

My wife knows a local employment attorney - think I'm going to have him review and advise.

Out of curiosity, did the employer tell you what the consequences of not signing would be? Did he say you would need to sign to continue your employment, or was it more like a "can't hurt to ask" type situation, with no consequences attached?

 

[Long Ball Larry]

as some may know, the FTC is currently trying to ban non-compete clauses, so maybe this thread will eventually be obsolete...

 

[Long Ball Larry]

Thanks @bigbottom #6 seems important as he did say the guys he knows at the company said they'd never heard of anyone that left the company having any legal enforcement action from the employer. So if I'm understanding right, that's a plus for the employee.

Absolutely. If they signed up a bunch of employees to non-competes and let them violate them when they left, and then turned around and tried to enforce it against a departing employee, I think they’d have a tough go of it in court (depending on the jurisdiction). That said, your friend’s son should be aware that when he goes and interviews for that next job, he will likely be asked about whether he has a non-compete, and some prospective employers may steer clear regardless of ether the employer has a history of seeking legal enforcement. In that situation, he may have to ask his employer for a waiver.

practically speaking, do you have an estimate of how often companies actually try to enforce a non-compete? I would think it would be a low percentage of the time, between not even knowing and the costs outweighing the benefits.

 

[moleculo]

My company had us sign a non-compete about 6 years ago because 4 or 5 people left to go to a competitor. It wasn't a big deal to me at the time because I didn't care for the folks who left - I wasn't going to work with them anyways. I think they gave us like $500 at the time to sign.

A few weeks ago, one of my co-workers left to go to a company that is in the same general field, but not a competitor. She asked Legal for her non-compete just to make sure she would be fine, and they couldn't find it (been a lot of turnover in HR and Legal since then).

Yesterday, my boss asked me to sign a fresh non-compete, with no incentive to sign.

Here's the problem - morale is extremely low at my company. We are at the point where most of the key people are openly talking about interviewing and what kind of jobs they are seeing out there; myself included. I absolutely don't want to limit my job search because of a non-compete. Part of it isn't just restricting from a potential employer, there's language in there about not talking disparagingly about my present company, hurting the morale (lol) of existing employees, encouraging others to leave as well, etc. Screw that, I won't be muzzled.

Thinking about just refusing to sign, and I don't think I will be the only one.

My wife knows a local employment attorney - think I'm going to have him review and advise.

Out of curiosity, did the employer tell you what the consequences of not signing would be? Did he say you would need to sign to continue your employment, or was it more like a "can't hurt to ask" type situation, with no consequences attached?

I was not given a carrot to sign or a stick for not signing....so

 

[Ron Swanson]

My company had us sign a non-compete about 6 years ago because 4 or 5 people left to go to a competitor. It wasn't a big deal to me at the time because I didn't care for the folks who left - I wasn't going to work with them anyways. I think they gave us like $500 at the time to sign.

A few weeks ago, one of my co-workers left to go to a company that is in the same general field, but not a competitor. She asked Legal for her non-compete just to make sure she would be fine, and they couldn't find it (been a lot of turnover in HR and Legal since then).

Yesterday, my boss asked me to sign a fresh non-compete, with no incentive to sign.

Here's the problem - morale is extremely low at my company. We are at the point where most of the key people are openly talking about interviewing and what kind of jobs they are seeing out there; myself included. I absolutely don't want to limit my job search because of a non-compete. Part of it isn't just restricting from a potential employer, there's language in there about not talking disparagingly about my present company, hurting the morale (lol) of existing employees, encouraging others to leave as well, etc. Screw that, I won't be muzzled.

Thinking about just refusing to sign, and I don't think I will be the only one.

My wife knows a local employment attorney - think I'm going to have him review and advise.

I would do nothing. If they follow up tell them you've sent it to counsel for review. No need to make it confrontational unless you want to or unless they press the issue. The lack of carrot or stick at presentation speaks volumes, IMO.

 

[whoknew]

My company had us sign a non-compete about 6 years ago because 4 or 5 people left to go to a competitor. It wasn't a big deal to me at the time because I didn't care for the folks who left - I wasn't going to work with them anyways. I think they gave us like $500 at the time to sign.

A few weeks ago, one of my co-workers left to go to a company that is in the same general field, but not a competitor. She asked Legal for her non-compete just to make sure she would be fine, and they couldn't find it (been a lot of turnover in HR and Legal since then).

Yesterday, my boss asked me to sign a fresh non-compete, with no incentive to sign.

Here's the problem - morale is extremely low at my company. We are at the point where most of the key people are openly talking about interviewing and what kind of jobs they are seeing out there; myself included. I absolutely don't want to limit my job search because of a non-compete. Part of it isn't just restricting from a potential employer, there's language in there about not talking disparagingly about my present company, hurting the morale (lol) of existing employees, encouraging others to leave as well, etc. Screw that, I won't be muzzled.

Thinking about just refusing to sign, and I don't think I will be the only one.

My wife knows a local employment attorney - think I'm going to have him review and advise.

If there is no incentive to sign, there may not be consideration for you to sign the non-compete. And, as a result, it may be unenforceable. I'm not an employment lawyer, so don't take that as gospel. But it was my first reaction to your post.

 

[chet]

The enforceability of non-competes is completely state dependent, and in states where they are potentially enforceable, it becomes dependent on the judge who oversees the case. My understanding is that they aren't worth the paper they're written on in CA but can have teeth in NY. IL is somewhere in the middle.

As someone else said, the FTC is trying to get rid of them altogether so the original question may become moot.

 

[moleculo]

My company had us sign a non-compete about 6 years ago because 4 or 5 people left to go to a competitor. It wasn't a big deal to me at the time because I didn't care for the folks who left - I wasn't going to work with them anyways. I think they gave us like $500 at the time to sign.

A few weeks ago, one of my co-workers left to go to a company that is in the same general field, but not a competitor. She asked Legal for her non-compete just to make sure she would be fine, and they couldn't find it (been a lot of turnover in HR and Legal since then).

Yesterday, my boss asked me to sign a fresh non-compete, with no incentive to sign.

Here's the problem - morale is extremely low at my company. We are at the point where most of the key people are openly talking about interviewing and what kind of jobs they are seeing out there; myself included. I absolutely don't want to limit my job search because of a non-compete. Part of it isn't just restricting from a potential employer, there's language in there about not talking disparagingly about my present company, hurting the morale (lol) of existing employees, encouraging others to leave as well, etc. Screw that, I won't be muzzled.

Thinking about just refusing to sign, and I don't think I will be the only one.

My wife knows a local employment attorney - think I'm going to have him review and advise.

I should have mentioned: state is South Carolina.

 

[bigbottom]

Thanks @bigbottom #6 seems important as he did say the guys he knows at the company said they'd never heard of anyone that left the company having any legal enforcement action from the employer. So if I'm understanding right, that's a plus for the employee.

Absolutely. If they signed up a bunch of employees to non-competes and let them violate them when they left, and then turned around and tried to enforce it against a departing employee, I think they’d have a tough go of it in court (depending on the jurisdiction). That said, your friend’s son should be aware that when he goes and interviews for that next job, he will likely be asked about whether he has a non-compete, and some prospective employers may steer clear regardless of ether the employer has a history of seeking legal enforcement. In that situation, he may have to ask his employer for a waiver.

practically speaking, do you have an estimate of how often companies actually try to enforce a non-compete? I would think it would be a low percentage of the time, between not even knowing and the costs outweighing the benefits.

I don’t really have any way of answering that question. But if a company has non-competes and wants them to be enforceable, they should consistently seek to enforce them.

 

[bigbottom]

My company had us sign a non-compete about 6 years ago because 4 or 5 people left to go to a competitor. It wasn't a big deal to me at the time because I didn't care for the folks who left - I wasn't going to work with them anyways. I think they gave us like $500 at the time to sign.

A few weeks ago, one of my co-workers left to go to a company that is in the same general field, but not a competitor. She asked Legal for her non-compete just to make sure she would be fine, and they couldn't find it (been a lot of turnover in HR and Legal since then).

Yesterday, my boss asked me to sign a fresh non-compete, with no incentive to sign.

Here's the problem - morale is extremely low at my company. We are at the point where most of the key people are openly talking about interviewing and what kind of jobs they are seeing out there; myself included. I absolutely don't want to limit my job search because of a non-compete. Part of it isn't just restricting from a potential employer, there's language in there about not talking disparagingly about my present company, hurting the morale (lol) of existing employees, encouraging others to leave as well, etc. Screw that, I won't be muzzled.

Thinking about just refusing to sign, and I don't think I will be the only one.

My wife knows a local employment attorney - think I'm going to have him review and advise.

If there is no incentive to sign, there may not be consideration for you to sign the non-compete. And, as a result, it may be unenforceable. I'm not an employment lawyer, so don't take that as gospel. But it was my first reaction to your post.

You are correct that consideration (or lack thereof) can be a central issue in enforcing non-competes. But access to new confidential information can constitute adequate consideration in many jurisdictions.

 

[Northern Voice]

as some may know, the FTC is currently trying to ban non-compete clauses, so maybe this thread will eventually be obsolete...

Banned here in Ontario now (I know that doesn't help for this situation)

 

[The Z Machine]

They should be banned altogether. They should make the former company prove in court that the employee that left stole their property (intellectual or a rolodex or other confidential info).

These "agreements" hurt the economy overall and hurt run of the mill employees especially.