by Randall S. Hansen, Ph.D.
Non-compete clauses are the business version of a prenuptial agreement Where in the courtship and marriage proposal, some folks are caught off guard when asked to sign the pre-nup, the same can be said in the employee-employer courtship we calling interviewing, when as a condition for hire, the prospective employer asks the job-seeker to sign a non-compete clause.
What are non-compete clauses, why do some employers use them, and how should you handle a request to sign one? That's what this article is all about.
Non-compete clauses have been on the rise over the last decade. What were once used for top executives, scientists and technicians, and sales people, are now being given to all new hires to sign. Employers use non-compete clauses to protect sensitive processes, technologies, and other trade secrets and information. The more competitive a field, the more likely employers will ask prospective employees to sign non-compete agreements. These employers do not want key employees to turn around and work for their competitors -- or to become consultants or freelancers either.
A non-compete clause can be a paragraph that is contained within a larger employment agreement or a completely separate document that new employees must sign as a condition for hire. Non-compete clauses usually try to specify three key areas: the geographic scope of where you could or could not work; the scope of your services, roles, and skills that can or cannot be used for a competitor; and the duration of the clause, in which one year is a fairly typical time constraint. Non-compete clauses must protect a legitimate business interest of the employer, such as trade secrets, confidential information, and customer relationships.
A non-compete clause can be a paragraph that is contained within a larger employment agreement or a completely separate document that new employees must sign as a condition for hire.
As with all legal documents, each non-compete agreement is different, and thus the best advice for job-seekers is to consult with a labor attorney. The more fair documents try to balance the company's right to protect its investment with the employee's right to work. However, most non-compete agreements favor the employer, and while it may be odd to think about leaving a company, you have not even started working for, the reality of today's labor environment is that job-seekers' average tenure with an employer is shorter and shorter. And in some cases, the non-compete agreement may not even be valid or enforceable, either because it is too constricting or because of other technicalities.
Several states severely restrict the use of non-compete agreements. Furthermore, you may be able to negotiate the terms of the agreement -- including the number of names of specific competitors, the breadth of the geographic scope, the amount of time, and whether the agreement goes into effect if you are downsized or fired rather than when you resign. You may also be able to win other concessions from the prospective employer for agreeing to sign the clause, such as a bonus, shorter review time for raises and promotions, or other perks.
So, as a job-seeker, if you get a great job offer -- the perfect job, with a great company, and a strong compensation package -- but with the caveat that you must sign a non-compete agreement, you'll need to take some time to evaluate the pros and cons of signing it and working for that company.
And what do you do if you are currently employed with a company that made you sign a non-compete agreement and you want to resign and change employers within the same field? It's important to disclose that you have signed a non-compete agreement, but you do not need to make it known until later in the interview process -- when you know the prospective employer is definitely interested in hiring you. If the prospective employer is truly interested in hiring you, they may assist you in getting out of the previous agreement.
For help in finding a labor attorney in your area, go to the National Employment Lawyers Association. And for more specific advice from a lawyer, read Non-compete Agreement FAQs. Finally, there's even a website devoted to this issue: BreakYourNonCompete.com.
Final Thoughts on Non-Compete Clauses and Agreements
The best thing any job-seeker can do when faced with signing a non-compete agreement is to get a copy of it, review it with a lawyer, and attempt to negotiate any necessary changes.
If you feel that your non-compete clause negatively impacts you, then maybe it's time to search for a new job. Try these tools to get started.