What Employees Should Know About Non-Compete Agreements and Other Restrictive Employment Contracts Before They Sign Them
Now more than ever companies are routinely requiring their workers to sign non-competition and/or non-solicitation agreements. Non-compete agreements were reserved for upper management or sales roles to limit them from going to work for a direct competitor. But in recent years, more employers have adopted the practice for a wider range of employees, including many lower wage workers in Service industries, such as retailers, hotels, restaurants, and hair salons. Now it is not uncommon to find non-compete agreements used for all kinds of jobs from security guards and pre-school teachers to customer service representatives and home health aides.
The government estimates that 16-18% of American workers have a non-compete agreement at their current jobs. Of those, an estimated 40-60% were asked to sign the contract on their first day of work. While over 30 million workers are required to sign non-competes as a condition to accepting a job, less than 10% of those workers negotiate these clauses. In addition, 30-40 % of workers are asked to sign non-competes after they have already accepted the position.
So, what should an employee know about non-competes and other restrictive agreements before they sign on the dotted line?
What Exactly is a Non-Competition Agreement?
Non-compete agreements. A non-compete agreement typically restricts an employee from competing with the employer's business for a set time and/or in a specific geographic area after their employment ends.
Non-solicitation agreements. A non-solicitation agreement restricts an employee from soliciting the business of specific customers of the employer within a set time period.
Non-disclosure agreements. A nondisclosure agreement prohibits an employee from using or disclosing confidential information that belongs to the employer.
While the contents of a non-complete may vary from company to company and state to state, they typically attempt to prohibit the employee from things such as:
- Working for a competitor company or competing individual;
- Starting a company that offers the same products or services;
- Developing competing products or providing competing services;
Similarly, a non-solicitation agreement is intended to prohibit an employee from recruiting former colleagues to join their new business or solicit clients or vendors of their former employer.
Are Non-Compete Agreements Enforceable?
The short answer is it depends, on both the state where the agreement is made to be enforced and the terms of the agreement itself. But in states such as Ohio and Kentucky where restrictions are enforceable, a breach can led to legal action and financial liability against a former employee.
Courts look to several factors to determine if the restrictions are enforceable, such as:
- Is the non-compete agreement needed to protect an employer's legitimate businesses interest, such as confidential business information?
- Does the non-compete agreement have a reasonable time limitation?
- Is the non-compete agreement limited to a specific reasonable geographic location?
- Does the non-compete serve to protect a legitimate business interest of the employer or is it simply trying to prevent an employee from seeking other employment that might be more lucrative or have better working conditions?
- Is the non-compete agreement support by "consideration," meaning does the employee receive some benefit for signing the agreement— like a new job, continued employment, more compensation, or stock options — for agreeing not to work for a competitor?
What Should I Do if I Am Asked to Sign a Non-Compete?
Because non-competes can severely limit an employee’s ability to change jobs by limiting where, when, and for what company or in what industry they can work, it is best for employees to not have a non-compete agreement at all. If an employer demands a non-compete, employees should try to negotiate the terms as much as possible both in terms of its in geographic scope and in its duration. It should also be limited as narrowly as possible with respect to the line of work it covers, so as not to prevent an employee from a whole industry or line of work.
With so much at stake, an employee should consult with an attorney before signing a non-compete or other similar agreement. Guessing wrong about the validity of the agreement or what the agreement covers can seriously affect an employee’s ability to work and have serious financial consequences. Or if an employee has already signed a non-compete, it is a good idea to consult with an attorney before making any job change to get advice on what limits the contract imposes and how to best avoid legal action by a former employer and the financial liability that can go with it.
The attorneys at Freking Myers & Reul are experienced with these issues and are here to help.
For more information on non-competition agreements see:https://www.workplacefairness.org/non-compete-agreements#maincontent