Non compete clauses

[adubroff]

Have any of you worked under a noncompete clause. In my current job, I had one, but it was 6 months in duration and not a huge deal. I currently work for a large corporation and there are not that many businesses which would qualify as competitors (and none of them are geographically located near me). In addition, I work in a portion of the business which is not the main focus of the corporation. I am pretty certain that I could work for a business that focuses on what I do without them getting too excited. Also, I am a developer, so realistically, the business in which I work is not that big a component in what I do. I signed the noncompete to receive some options from the business which have been fairly lucrative, and would do so again.

However, due to some shifting business priorities, I am seeking a new job. I have an offer from a consulting company. As a portion of the offer, there's a non compete clause of 3 years. I was wondering if anybody had experience where they'd worked under such a long agreement?

[molson]

Companies love to put these in their contracts, but they're rarely enforceable. How rarely varies a lot by state.

[gstelmack]

Do some web research. There are some opinions out there that no-compete clauses are unenforcable as it effectively locks you into that employer, since it means you can't take a job using your skills anywhere else. You need to look up the employment laws in your state and see what the real deal is. You also need to check the contract to see what they mean by "no-compete", as this can be as broad as "don't take your C++ skills anywhere else" vs "stay in the exact same industry". It also depends on how much they want to spend attempting to prosecute it. There is already coverage for you giving trade secrets to the other company, so the point is generally nothing more than making sure you work for them only.

[molson]

The super short answer if that they have to be reasonable in time and scope. 3 years, on first glance, would seem to be unreasonably long, but if the scope is extremely limited to a very specific kind of work, who knows.

But ya, check the internet, there's a ton of stuff about this out there.

[adubroff]

The super short answer if that they have to be reasonable in time and scope. 3 years, on first glance, would seem to be unreasonably long, but if the scope is extremely limited to a very specific kind of work, who knows.

But ya, check the internet, there's a ton of stuff about this out there.


The scope is basically their customers and prospects(including anybody they've "contacted") and it basically says I can't own or work for any company that does business with one of these prospects. My one concern is the "work for a company which is already doing business with one of these customers".

There's also a fun clause that if any term in the contract is deemed to be excessive, then I'm bound by whatever is deemed to be fair by the courts.

[BrianD]

Non-compete clauses generally (in this area at least) center around on not working full-time for a company you are consulting/contracting with. Normally there is also some kind of provision in the customer agreement that says they can't hire you full-time without some kind of compensation. This type of buy-out will usually be possible and won't involve the non-compete.

[SirFozzie]

Yeah, that's way over the line. I wouldn't sign that. That's pretty much locking you out of the field for three years.

[adubroff]

Yeah, that's way over the line. I wouldn't sign that. That's pretty much locking you out of the field for three years.


I think this is a little strong due to the size of the company. But it would definitely make it a pain...I can only imagine going into the next job interview: have you ever done business with any of these 50 companies? Do you want to?

[Desnudo]

Generally speaking, a consultancy is only going to hold you to that agreement to prevent you flipping to another company/independent status and continuing to work in the same role on the same project for the same client.

[adubroff]

Generally speaking, a consultancy is only going to hold you to that agreement to prevent you flipping to another company/independent status and continuing to work in the same role on the same project for the same client.


Yeah...if it said that I wouldn't have thought twice about it. Of course, they should want that level of protection.

[Vinatieri for Prez]

I would add that rather than these being rarely enforceable (as some have stated), they normally ARE enforceable, so be careful. As stated, it does matter from state to state (much more employee friendly in Ca. for example) and what's language is used. From the proposed one, since it deals only with the employer's customers, it likely will be enforceable (as opposed to preventing you from working in an industry). So, read it very carefully before taking the plunge, and make sure you are willing to abide by it.

I would also add that in many states, (again converse from what was stated above) 3 years is often deemed a "reasonable" constraint.

Try negotiating it out of the deal or to reduce it (e.g. 6 months or a 1 year; employer's top 5 clients)

[law90026]

Note: I am not qualified to practice law in the US so read what I post below with caution. Having said that, the rationale for non-compete clauses are largely the same as well as in terms of legal concept. The differences would be in terms of what constitutes "reasonable" and the like. By way of reference, I am qualified to practice law in Singapore and the United Kingdom and I actually do see these clauses a lot since I do corporate work.

*************

The general rule is that such non-compete clauses are unenforceable unless they are reasonable. What constitutes reasonable will vary from jurisdiction to jurisdiction. Factors that will be looked at include the length of the clause, the geographical territory covered by the clause, the breadth of the clause in terms of how restrictive it is in terms of possible future employees as well as the interest the employer is trying to protect.

There are 2 purposes for the non-compete clause. The first is to prevent you from starting a rival company and essentially steal your employer's customers, hence the reason why you can't own a company that has dealt with such customers before. The second is to prevent either a competitor or one of your own clients from hiring you as that represents a HR loss for your employer.

In this case, you have said that the clause is for a period of 3 years and sets restrictions on who your next employer can be. I would argue that this is definitely too wide since it appears to be a global restriction as opposed to limited to a specific location(s) and 3 years is a long time. The key here for you is that the clause should not prevent you from making a living from your speciality/profession just because you change employment.

The sub-clause you mention is relatively common though for larger companies. It's a standard get-out clause in the event you try to bring the company to court to claim it is unenforceable or they try to get an injunction against you. Courts will generally try not to strike down a clause in its entirety and this clause gives the court the option of giving a more reasonable option. So for example, a court may be of the view that 3 years is too long and reduce it to 1 year, in which case you would be bound for that length of time. Of course, this is both a good and bad thing. One of the more publicised cases in Singapore resulted in a bunch of employees being put on garden leave for the entire period of the non-compete clause, i.e. they stayed at home, didn't have to work and were paid their full salary. This sounds good but in that case (which involved high networth banking) the former employer got what it wanted by ensuring that its bankers did not take away its customers. Whether the bankers were pleased is a different issue since not being able to work for a year also potentially means the loss of contacts and clients.

As to whether you should sign it? Again, most savvy companies have such clauses in their employment contracts. Unless you never ever intend to work for such companies, your best bet would be to understand how the applicable employment law regime works so that you know what you're in for, rather than to view this as a bad thing.

The other thing is that if you don't leave a company on bad terms and you're not leaving for a competitor, it's often possible to get a waiver of this condition from your employer before leaving, so it's not as if you're necessarily stuck.

[Desnudo]

Yeah...if it said that I wouldn't have thought twice about it. Of course, they should want that level of protection.

The point I was trying to make is that even though it may not say that exactly, that's actually what they mean, usually. Although I agree three years seems like a very long time.

[adubroff]

I would add that rather than these being rarely enforceable (as some have stated), they normally ARE enforceable, so be careful. As stated, it does matter from state to state (much more employee friendly in Ca. for example) and what's language is used. From the proposed one, since it deals only with the employer's customers, it likely will be enforceable (as opposed to preventing you from working in an industry). So, read it very carefully before taking the plunge, and make sure you are willing to abide by it.

I would also add that in many states, (again converse from what was stated above) 3 years is often deemed a "reasonable" constraint.

Try negotiating it out of the deal or to reduce it (e.g. 6 months or a 1 year; employer's top 5 clients)


Yeah I was going to try to do this. I was going to try for "only customers I've actually worked for" and 6 months. I don't really see why I should be restricted from dealing with a company where future employer installed Microsoft Exchange.

I don't want the contact thing in there as it's written, it's way too wide. Future employer called current employer to check references. If future employer put current employer in rolodex, and current employer wants to start a company (non competive to future employer) and make me CTO, I don't think I could take it (as I read it).

I thank all for feedback on this, it's really helped me clarify thinking.