If you are in sales, management, or a technology company, then you’ve probably been asked by at least one employer to sign an agreement containing a non-competition clause.
Here’s what you need to do the analysis.
What is your job history before you threw in your lot with the company? A company cannot prohibit you for earning a living at your trade. If you’ve been in the field for 20 years, then you have an established profession. If the company is teaching you the trade from scratch, then you haven’t lost much if they keep you out of the field.
What is your job with the company? Is it limited by a region (Texas, Oklahoma, Louisiana), or by product (refrigerators), or by type of client (companies with at least 500 employees)? A reasonable non-compete keeps you out of the line of business that you were actually doing, not every line the company carries.
What does the non-compete actually prohibit you from doing, and how are the terms defined? If the word “product” is defined as every product line offered by the company, then it is probably too broad. If it is limited to the product line you sold or clients with whom you actually worked, then it will probably stick.
How long did you actually work with the company? The longer you worked, the more likely the non-compete will be enforced.
When did you sign the non-compete? Was it at the beginning of your employment, before they gave you customer lists and product training, or was it after you had been employed for 4 years and new management took over? A non-compete has to have separate consideration (something of value) associated with it. When the company gives you access to its secrets, then it has given you something of value, and that is enough to support a non-compete.
How long does the non-compete last? One year is usually reasonable, but that is highly dependent on the industry and your role with the company. Two and even three years non-competes have been held to be enforceable.
What are the actual restrictions for the location covered by the non-compete? This can vary by profession, type of business and type of job. One court held that a restriction on a veterinarian of a 10 mile radius from his employer’s office was reasonable, while another court held that a broad, industry-wide restriction on an insurance agent was unenforceable.
A non-compete clause is unique because a court can actually rewrite its terms if it finds the original terms too broad. In one case involving an individual who taught speed-reading, the employee had signed an agreement that stated he could not compete within a 1,000 mile radius of any class conducted by his employer. The court modified the restriction to read that the former employee could not compete in the county where he had worked.
There are other factors that the court will consider. Is the non-compete accompanied by a non-disclosure agreement, which states that you won’t disclose the company’s secrets? What does the employer actually need to protect its interests in the information and the marketplace? What was your salary and your importance to the company? How many competitors are there? What are you doing for your new employer?
Perhaps the best insurance – take your non-compete agreement to a lawyer (before you sign) and find out what it restricts. That gives you the information to make a business decision – how much is it worth to you to be taken out of your marketplace?