Late last year, I shared with you the “5 Key Components of a Non-Disclosure Agreement”. It’s an interesting read if you’ve ever been asked to sign one, especially in today’s labor market. This reader note doesn’t deal with non-disclosures, but something similar: non-compete agreements.
Hello Sharlyn. My question is simply this: sometime during my wife’s 21+ years with a company she was asked, and did sign, a non-solicitation / non-compete agreement. She was recently let go, told due to company cutbacks. As she has been in this industry for over 21 years and the company let her go, it is my belief that the non-solicitation / non-compete agreements are now invalid as my wife was not the one asking to leave, and it is her line of work to be gainfully employed. Am I wrong? Is there a situation where she could be held to it?
To offer some insights about these types of agreements, I asked employment attorney Donna Ballman to share her expertise. She’s helped us before with one of my favorite posts titled, “Can You Bring Your Mother to a Meeting With HR?” Donna’s work focuses on employee-side employment law issues, so whether you’re an employee or an HR pro, these insights will prove to be valuable.
Please remember that Donna’s comments should not be construed as legal advice or as pertaining to any specific factual situations. If you have detailed questions, they should be addressed directly with your friendly neighborhood employment law and labor attorney.
Donna, obviously we don’t know all of the details, but it would be good to talk about non-solicitation and non-compete agreements. Let’s start with some definitions. What’s a non-solicitation agreement and a non-compete agreement? Because it’s my understanding they’re not the same thing.
[Ballman] A non-solicitation agreement is one saying you won’t solicit the employer’s customers and/or employees for a set period of time. A non-compete agreement says you won’t work for a competitor for a set period of time. That period can be from weeks to years.
In your experience, why do organizations ask employees to sign these types of agreements? And are there situations when an agreement is unenforceable?
[Ballman] Well, there are two different answers. What they’re supposed to be for is to protect legitimate interests such as trade secrets, company goodwill, or other interests, as defined state by state, but never for the purpose of preventing competition.
An agreement solely for the purpose of preventing competition violates antitrust laws. Yet many employers use them for improper purposes, such as preventing competition, suppressing wages, or forcing employees to work in abusive situations.
I can see the benefit to employers in having an employee sign these types of agreements. But, is there any benefit to an employee? If so, what is it?
[Ballman] I can’t think of one, but many states allow employers to spring them on employees after they start and say sign or be fired. So, most employees feel they have no choice but to sign if they want to keep their jobs.
This reader’s note talks about his wife wanting to be “gainfully employed”, so let’s focus on the non-compete aspect. Do the circumstances of an employee’s departure (i.e. a layoff versus a termination) effect a non-compete agreement?
[Ballman] In some states yes, in others no. I can speak to very anti-employee Florida, where the statute specifically says a court cannot consider hardship on an employee.
But in some states that are more employee-friendly, a termination without cause may limit a non-compete agreement’s enforceability. Some may require a severance payment for the length of the non-compete. Some states bar some or most non-competes.
If an employee is concerned that they will not be able to find work after signing a non-compete, do they have any options? If so, what might they be?
[Ballman] Let’s assume that hardship is not a defense in your state. I tell my clients to try to look for a sidestep. For instance, if your company manufactures widgets, maybe go to a company that distributes widgets. Or go to a company that manufactures something else, say sprockets.
Maybe your restriction is in one county, but you can work in the next county over. Look carefully at your restrictions and see if there is something you’re allowed to do that would keep you in your industry but allow you to still comply with the agreement.
Last question. Regardless of the circumstances of an employee’s departure (i.e. voluntary or involuntary termination), should employees always ask to be let out of their non-compete agreement? I mean, is there harm in asking?
[Ballman] I always recommend trying to negotiate with the employer. For instance, say you’re in doubt about whether the sprocket manufacturer is something the company would consider a competitor. I usually say send something like this with a read receipt and a delivery receipt: ‘I have an offer from ABC Sprockets. They do not manufacture widgets, and I believe accepting this position will not be a violation of my confidentiality and non-competition agreement. If you disagree with me, please notify me within 72 hours from the date of this email. Otherwise, I will accept the offer.’ Then one of several things will happen.
- They’ll say ‘Okay, that’s fine’. Great! Go ahead and accept. If they didn’t put that in writing, then you put it in writing. ‘This will confirm our conversation on June 17 that you agree ABC Sprockets is not a competitor and that I am free to accept a position with them.’
- They say ‘No’. We’ll sue you, your mother, your dog, and everyone you ever met if you take this job.’ That’s the time to hire someone like me who handles employee-side employment law in your state to respond and explain why they think there’s no legitimate interest to protect and try to negotiate for you.
- They ignore you. Then send another email saying something like, ‘I am glad you agree that I am allowed to accept this position. I will notify them of my acceptance.’ Then wait another 24 hours or so to see if they surface. If they don’t, send your acceptance, make sure the job is confirmed, then send your resignation.
Does this make the whole issue go away? Not necessarily, but lack of good faith is a defense to enforcing a non-compete or non-solicitation agreement, so this could help if it came to proving your case. I actually had a case where the former employer said okay, threw my guy a farewell party, told everyone where he was going, then sued. We still had to defend him (and successfully, I might add).
If you have a good relationship with the employer, it doesn’t have to be this formal, but if you do verbally negotiate release or reduction of your non-compete or non-solicitation agreement, follow up in writing. Your agreement probably says it can only be modified in writing signed by both parties.
My thanks to Donna for sharing her knowledge with us on this tricky topic. Please be sure to check out her blog, Screw You Guys, I’m Going Home. It’s been named one of the American Bar Association’s 100 best legal blogs. And she’s the author of the award-winning book “Stand Up for Yourself Without Getting Fired: Resolve Workplace Crises Before You Quit, Get Axed or Sue the Bastards.”
As more employees are faced with initiating a job search, it’s important to understand all of those documents you signed as an employee. This will allow you to focus your energies in the right direction.
Image captured by Sharlyn Lauby while exploring the streets of Long Beach, CA14