So, if you landed a major gig only for your prospective employer to give you a non-compete agreement, don’t worry. This article details the nooks and crooks you should know before coloring the dotted lines.

What is a Non-Compete Agreement?

A non-compete agreement is a document that legally binds two parties. It restricts the employee from starting a competitive business for a designated amount of time. The agreement burns you from exploring new opportunities in rival companies. Also, you cannot disclose information considered by your employer confidential or proprietary.

For clarity, just know that this legal binding is meant to protect the working condition and wages of the US workforce while at the same time allowing the hiring of foreign employees. So, whether to sign it or walk away is determined by how bad you need that job.

How Important Is It?

The law obliges every potential employer to confirm the authorization of their new employees for work but not to discriminate against hiring foreign employees. It is an essential document this.

The non-compete agreement started as a scalpel for industries to protect their intellectual properties. With time technology has made this need a desperate must-have bludgeon that exploits every sector in the US. With the uncertainties and unpredictability of the future, companies have to retain their most valuable capital – their talented employees.

When no is not a luxury you can afford, try to bargain for better terms. Read every line. Scrutinize every detail. Make sure you get it right before signing. The non-compete law varies in every state.

Where You Should Pay Attention

The larger the regional radius that binds you, the more you should negotiate for better terms. Also, ask the hiring company to specify which companies are out of your reach so you find yourself exiled from the rest of the industry. Remember that that contract comes with an expiry date.

Keep your employer on a short leash. Limiting yourself to one place for long periods is a career killer. Again, bargain for the departure time. Does the contract hold if you are fired? Also, in case you decide to sue the employer when the contract is still valid, who pays for the company lawyer?

Hiring foreign employees gets harder every day. The non-compete agreements are the latest forms of economic insurance.

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The employers use this agreement to protect their trade secrets and goodwill. An employee might learn the trade secrets of an employer and then decide to start a business using the acquired trade secrets or use the acquired good will to compete with the employer. This agreement becomes active after the end of employment because this is the time the employee ceases to be the employee of the particular employer.

When Are They Used?

For a non-compete agreement to be valid it must be supported by consideration. This means that the employee must get something in return for signing the agreement. When it is signed before employment, the employer is required to provide the employee with employment that will sustain him or her without having to engage in other things. In case the agreement is signed after being employed, the employer is required to promote the employee or add something else that was not included in the original employment agreement.

Why Use One?

Another condition of this agreement is that it must protect a legitimate business interest of the employer. This means that the agreement should be legal only if when the employee starts competing with the employer or working for the competition the employer will lose something of value. The court is responsible for determining whether the employer legitimate business interests will be affected by the employer starts competing with the employer.

Does It Apply Worldwide?

The non-compete agreement should also be reasonable in scope, time and geography. Every agreement is unique depending on the services provided by the employer. The agreement should state the scope it covers and also the geographical area. If the employer provides services in a certain geographical area the agreement can bar the employee from operating within that particular area but be free to operate in other areas beyond the stated area. The time scope states the period of time when the employee should not engage in the stated business. All these factors need to be reasonable and court plays a big role in determining these factors.

The non-compete agreement can be signed by almost any employee.

Foreign Employees

While hiring foreign employees one might require that they sign this kind of agreement. This is helpful because some of the foreign employees might learn trade secrets and gain goodwill from working for a certain employer.

When hiring foreign employees especially the one with special skills one needs to decide whether to make the employees sign the agreement. Therefore, a non-compete agreement is an important instrument for protecting employers from the challenges that they might face when the employees stop working for them.

When hiring foreign employees especially the one with special skills one needs to decide whether to make the employees sign the agreement. Therefore, a non-compete agreement is an important instrument for protecting employers from the challenges that they might face when the employees stop working for them.

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Leaving the right way can make all the difference

Whether by layoff, termination, or decision to explore greener pastures, leaving a job is a stressful and emotional time.  Making the right decisions and avoiding career damaging mistakes are critical.  Having represented the rights of well over eight hundred clients we have seen how powerful a little knowledge is and unfortunately how devastating ignorance can be.   Presented below  are the five critical steps you can take to protect your future. .

Request a copy of your personnel file

Before your departure from the company, pay a visit to the human resources department and request a copy of your personnel file.  This file should include performance reviews, awards, contractual agreements and other items that may be beneficial to you in your future job search.  If your employer refuses to provide this information, remind them that you have a legal right to any documents that you have signed.  It is also wise to keep a copy of all company policies, employee manuals, and other data that is non-proprietary.  This information is critical in the event of a dispute involving your rights to unpaid overtime or for wrongful termination, etc.

Collect recommendations and references

Prior to your departure, request a written letter of recommendation from your immediate supervisor or other higher ranking individual.  Also obtain the name and number of a person in the company who prospective employers may contact for a positive reference.  Remember that anyone who has witnessed your work and thinks you do a good job can serve as a reference, including supervisors, managers, colleagues, co-workers, and subordinates. Be sure to obtain their personal contact information including home address, phone number, and email so you can reach them in the event that that they leave the company.   If you offer to serve as a reference for them and provide your contact information, they may be more willing to reciprocate.

Keep in mind  that even individuals outside of your company may serve as references.  Perhaps the most important word to remember is “network.”  Take a few minutes to call or email people in your industry with whom you’ve established a good working relationship.   As Laura T. Coffey points out, the more contacts you have in the industry, the better your chance of finding work quickly.  

Protect your benefit plans
 
Obtain a copy of your employer’s health insurance policy and find out what it covers.  It is possible that you may continue coverage under your existing plan for a few months pursuant to COBRA, but this is likely to be costly.  It is wise to look into the cost of personal health insurance and shop around for the best price.  Also access your retirement plan.  You may be able to take your pension as a lump sum or transfer your money to an individual retirement account (IRA). 

Remove all personal items 

If you anticipate leaving your job, begin removing all personal items from your office.  At the time of termination, you may be escorted off the premises without time to pack your belongings.  Someone may do this for you later, but this is not guaranteed.  Don’t forget to check your computer.  If you have created any personal files or installed software, copy and delete them.  Be careful not to take anything that may be considered proprietary, such as customer lists, proposals, financial reports, etc.  You certainly don’t want to begin your job search with accusations of theft or violation of contract.

Evaluate your severance package and release

Although employers are not required to offer severance benefits, they may do so in order to smooth things over with exiting employees.  Severance benefits may include up to six months salary, extended health insurance coverage, payment for accrued sick days, and outplacement services, among others.  However, these benefits do not come cheap.  Employers will usually condition payment on the employee’s signature of a release that waives all claims against the employer.  Promises of non-disclosure and non-competition are often common.  You should never sign such a release without first talking to a labor law attorney. .  If you are owed any past wages for unpaid overtime or for any other reason you could easily lose those rights which could be substantial. These contracts are drafted for the sole benefit of the employer and are legally significant.  Therefore, it is important that you have a labor law attorney review the release before signing.  A knowledgeable labor law attorney will protect your rights and may be able to negotiate more favorable terms.

If you have any questions or concerns about your employment rights upon leaving an employer, do not hesitate to an experienced California labor law attorney.  Some attorneys will review your situation without charge, in which case you can have peace of mind and protect your rights without any cost to you.

Photo Credit: Shutterstock/Idutko

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A non-compete agreement is a contract between the employer and an employee whereby the employee agrees not to compete with his ex-employer when he leaves the employ of that company. In other words, the employee may not contact customers of his old employer and solicit their business. The purpose is to protect the employer from the employee using confidential knowledge acquired during his employment which can be used to compete against the old employer.

In most cases non-compete agreements are not enforceable in California. Business and Professions Code § 16600 provides that:

“every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.” Section 16600
invalidates agreements to preclude employment in a certain line of work. The section has also been construed by California courts as invalidating agreements that seek to prevent former employees from accepting work from any of the former employer’s clients. (Morris v. Harris (1954) 127 Cal.App.2d 476.) A former employee may also solicit employees from his or her former employer if unlawful means or acts of unfair competition are not used. (Diodes, Inc. v. Franzen (1968) 260 Cal.App.2d 244.)

Even though non-compete agreements are generally not legal, many companies require their employees to sign non-compete agreements to deter an employee from competing or using his/her knowledge after leaving. If you have been asked to sign a non-compete it most likely is non-enforceable, or at least much more limited than it appears.

There are a few exceptions where non-compete agreements may be enforceable.

• Business ownership exception: It applies when a shareholder “sells” their stock to another for valuable consideration. (Hilb, Royal & Hamilton Ins. Services v. Robb (1995) 33 Cal.App.4th 1812, 1824-1825.)

• Partnership Exception: Business & Professions Code § 16602. However, not every agreement restricting competition between partners is valid. A “rule of reason” applies. (Howard v. Babcock (1993) 6 Cal.4th 409.) For example, a partnership agreement may validly restrict competition by precluding withdrawing partners from practicing in a limited geographic area. (Id.) Unlike business sales and section 16601, there is no requirement pursuant to section 16602 that compensation for goodwill in the partnership be transferred. South Bay Radiology Medical Associates v. Asher (1990) 220 Cal.App.3d1074, 1083.

Labor law is complex; if you have any questions regarding your employment it is recommended that you contact a California labor law attorney who can help you understand your rights and in many cases will review your situation without charge.

Photo Credit: Shutterstock/Henryk Sadura

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