Even though you may be desperate to keep your job or find a new one, think long and hard before signing a noncompete agreement.
Among the flood of forms you get when you’re first hired, or paperwork a boss asks you to fill out as part of a new company policy, a noncompete clause or agreement may be lurking. If you sign it, you could be shooting yourself in the career foot.
Such legal documents can preclude you from going to work for a competitor or even keep you from starting a business in a similar industry.
Gretchen, who worked in telecommunications in Florida, says she was forced to sign such a noncompete form in order to keep her job and was subsequently laid off. (She asked to be identified by her first name only to improve her chances with potential employers.)
“I am a single mother, and finding a good-paying job in South Florida is not always the easiest,” she says. “So I was told I had to sign the agreement or I would lose my job. So I signed.”
Suddenly she found herself without a job and unable to work in her chosen field because the noncompete agreement prohibited her from working for a competitor.
“I have not worked in the industry since and have had to start all over again in another industry,” she says. “I now sell exterior building materials in an economy that is getting progressively worse for this type of business.”
“What is an employee’s recourse?” she asks.
Unfortunately, depending on the state you live in, there may be little recourse if you knowingly signed such an agreement.
Think before you sign
Barbara Poole, CEO of Employaid, an online resource for employees and HR executives, likens noncompete agreements to prenuptial contracts. Too often, employees get caught up in the elation of getting a job offer and “don’t think about what they’re signing.”
However, legal experts say, you sign at your own peril. Given the tough economy and intense competition among most industries today, employers increasingly are taking workers to court over violations of these agreements.
“We see far more attempts to enforce these,” says Poole.
In addition, noncompete agreements have become more common as the economy has shifted more toward service sector jobs and away from manufacturing.
“More jobs are in the service world, where information is the premium,” says Steve Fox, employment attorney at Fish & Richardson in Dallas “The value of what employees have in their heads is greater. There’s more of a need for noncompetes because it’s so much easier to leave and take what you’ve learned from the old employer and apply it with the new employer.”
That’s exactly what worried Susan Polselli, owner of a fruit bouquet franchise called Incredibly Edible Delights in Palm Beach, Fla.
Polselli has made her employees sign noncompete agreements for the past decade but recently sued to enforce the accords for the first time, targeting two workers who left to work for a direct competitor in town.
“As an employer and owner of a small business, you don’t have a lot of resources. All you have is your product or business,” she says. “If they went to work at a clothing store I wouldn’t go after them.”
It’s not just small businesses that are enforcing noncompete agreements.
There’s a very public battle going on right now between IBM and Apple over an employee who signed a noncompete agreement.
IBM is suing a former employee who took a job as senior vice president overseeing iPhone and iPod development at Apple earlier this month, claiming he violated his noncompete agreement.
Mark Papermaster, the employee in question, is accused by IBM of violating "his contractual obligation to refrain from working for an IBM competitor for one year" after leaving his employment at IBM, according to court papers filed in Manhattan last month. "Papermaster has gained access to confidential information concerning the company's strategic plans, marketing plans and long-term business opportunities, including the development of specific IBM products.”
Daniel Levine, an employment attorney with Shapiro, Blasi, Wasserman & Gora in Boca Raton, Fla., says a company doesn’t have to necessarily show that an employee is hurting a firm by going to work for a competitor.
“There’s a presumption of irreparable harm,” he says. But that doesn’t mean an employee can’t present evidence showing he or she is not causing any damages to their former employer. Then it’s up to the judge to decide.
In Florida, where Levine practices, the courts are more favorable to employers in the matter.
Do they stifle entrepreneurship?
In California, on the other hand, such noncompete clauses are not even enforceable, says Bijan Sabet, a venture capitalist with Spark Capital in Boston.
Sabet, who is spearheading a national campaign to get rid of noncompete agreements, believes they stifle entrepreneurship and creativity because employees who are forced to sign them will be less apt to go out on their own and start a new business venture or design a product that may somehow conflict with a noncompete contract they may have signed.
“I see entrepreneurs all the time that want to leave their companies and start something,” he explains. “But if they signed a noncompete, they don’t know what’s going to happen. It’s like playing Russian roulette.”
Often employers think it’s just not worth it to go after a former employee, but a worker’s actions could push a firm’s hand, says Richard Bridgford, an attorney in Aliso Viejo, Calif.
In one recent case Bridgford represented an employer whose former employee took customer lists and proprietary company information and used that data when he went to a new firm to undercut his old bosses.
“The company sued him and was successful,” he adds.
What to know before you sign
There are a couple of things to keep in mind before you do sign a noncompete agreement.
It’s a good idea to contact your local labor department to find out if noncompete clauses are applicable in your state. If they are, Levine advises employees to spend some time reading the document and maybe even have a lawyer take a look so you fully understand what you’re agreeing to.
If you decide not to sign a noncompete agreement, an employer can decide not to hire you. That is within their legal rights, he says.
If you're laid off, he adds, you could try and negotiate a severance package so that you’re not in financial dire straits during the period you’re not allowed to compete.
You also have to take into consideration the scope of the agreement is. In many cases if a noncompete clause is too broad it won’t hold up in court, legal experts say.
And nothing precludes you from altering the noncompete agreement before you sign it. An employer may not accept it, but what do you have to lose?
“If you work in retail and the noncompete says you can’t work for another retail company within 250 miles, that limits your options,” she says. It’s reasonable, she adds, to ask that they narrow the scope to maybe another bookseller, or coffee shop, depending on what the direct competition is for the business.
The bottom line is getting a longer perspective on your career, beyond just a job offer on the table.
“It’s like the pushmi-pullyu [a fictional two-headed creature] from ‘Dr. Dolittle,’ ” says Employaid's Poole. “You want to sign, but should you sign?”
If you don’t ask yourself that question, you may end up not knowing whether you’re coming or going when it comes to your job prospects.