Employees, Here Are 4 Things You Should Know About Non-Compete Agreements
Restrictions around non-compete agreements are rapidly changing. Within the past few years, many states have recognized the abusive nature of non-competes. As such, they’ve been taking action to limit or ban them altogether. In July, President Biden signed an Executive Order encouraging the Federal Trade Commission (FTC) to explore restrictions on non-compete agreements nationwide. The Executive Order will curtail agreements and unfair clauses that unfairly limit worker mobility.
Non-compete agreements were initially introduced as a way to prevent employees from becoming or engaging with competitors in a particular industry and sharing intellectual trade secrets. The agreement places limits on where an employee can apply for work in their industry and how long the contract is in effect. In order to protect a business’ interests, a non-compete prevents an employee to use and share what they’ve learned at a job to compete against their employer.
Not All Non-Compete Agreements Are Enforceable
Since restrictions are rapidly changing, it’s important to research your specific location. While a nationwide ban is unlikely, states continue to enact new limits on the use of these agreements. Each state has different restrictions and limitations. As it stands now, North Dakota, California, Oklahoma, and the District of Columbia are the only states where non-competes are unenforceable. Other states such as Massachusetts, Maine, Illinois, New Hampshire, Rhode Island, and Washington prohibit non-competes for low-wage employees.
Despite some states making non-compete agreements unenforceable, there are still employers in those states that make their employees sign them. According to MacElree Harvey, a full-service law firm, “in California, not only are non-compete agreements unenforceable but an employer who requires employees to sign them can be sued, even if the employer never tries to enforce the agreement.” This is important to know now more than ever with the increased hiring of remote workers. Rikka Brandon, founder of Recruit Retain Rock, stated, “a surprisingly high number of companies have people sign non-competes they know aren’t enforceable because they know most people will just follow it.” This is because most employees are unaware of what their rights are and believe their employer knows better than them. Moreover, employees are often scared to speak up or question the non-compete for fear of losing their job or having their offer revoked.
Here are some things that make a non-compete unenforceable:
- Too broad of terms that don’t specify a timeframe, scope of work, or territory
- Highly burdensome restrictions that hinder a worker from being able to make a living
- Unrealistic (unable to work for a competitor for five years, restricts an individual from working in too large of a geographical area, etc.)
- In a state that bans non-compete agreements
Non-compete agreements should be reasonable and specific about the scope of work that’s restricted. Agreements with language that is too broad, unreasonable, and burdensome can void an agreement. This is why it’s important to take the time to read an agreement in its entirety and know your rights before signing.
Know Your Rights And How To Negotiate
Employees shouldn’t sign an agreement they aren’t comfortable with or don’t fully understand. The last thing an individual wants is to feel bound to an agreement with no way out. For this reason, employees should consult with an employment attorney who can help them make sense of it and prevent them from being exploited. Although it’s your right to refuse to sign a non-compete agreement, by doing so you may lose your job offer or be terminated. As a consequence, employees end up signing the agreement because they need money, health insurance, and other company-provided benefits.
Here are some details an employee should understand before signing a non-compete:
- How long does the agreement last after leaving the company
- What are the consequences of breaching
- What is the scope of the agreement
- What is the geographical limit that an employee is restricted from working after leaving
The Cost Of Breaking One Is Larger Than You Think
Even though non-competes were initially implemented with good intentions, company-required non-compete agreements have become abusive in nature. This is because they’re one-sided and don’t benefit the employee. Jimmy Johns, a sandwich chain, is a prominent example of a company that abused its non-compete agreements. The non-competes targeted low-wage workers preventing them from taking jobs with competitors for up to two years after leaving the company. In addition, the agreements prohibited employees from “working within two miles of a Jimmy Johns store that made more than 10% of its revenue from sandwiches.” With over 2,000 stores nationwide, workers, including janitors, didn’t have the freedom to change jobs in order to seek better wages, further their careers, and improve their lives.
Bryan Carter, founder and CEO at ResumeBuilderPro, stated, a common belief employees have is that they can put aside a set amount of money to pay off their employer and go work for the new company. He warns that companies can still “issue an injunctive relief or temporary restraining order before taking them to court. If you disobey that order, you may be held in contempt of court.” He added, if the judge issues an order prohibiting you from working for your new employer, you may also be required to pay your previous employer’s legal expenses as part of your non-compete agreement.”
This is why it’s important to be upfront and honest when interviewing to let employers know that you’re under a non-compete. Brandon explained, in some instances, “your new employer can work with your past employer to come to terms and settle any issues that may come up by buying out the agreement or agreeing to shared commissions on customer sales.” They could also find loopholes or supporting legal documents to release you from your non-compete. She warned, while this is ideal it doesn’t always happen. This is because it requires a strong relationship and is hard to execute in real life. In the case of Jimmy Johns workers, who make a low wage, it’s not likely they’d find a company that would take on that responsibility. This keeps workers stuck in low-paying jobs.
Understand The Constraints Of Signing A Non-Compete
Regardless of how exciting a job opportunity may seem, it’s crucial individuals understand what they’re giving up. Workers don’t sign non-compete agreements with the intention of being taken advantage of or something bad happening, like joining a toxic workplace, being fired, or receiving a better opportunity. For this reason, it’s important to understand the constraints of signing one. For example, if the non-compete is an 18-month agreement, that means for 18 months you’ll be unable to join a competing company which could lead to a diminished skill set, a loss of relationships, and income in your area of expertise. This is why negotiating terms is important. As such, employees should be aware of the ramifications such as when an agreement expires, what the restrictions are around the work they can do, and where they’re prohibited from working.