So much like a prenup: The noncompete agreement

By Peter Gray

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Congratulations, you're hired! How sweet it is. But wait. There's a hitch. They want you to sign a noncompete agreement. It's a little like a marriage proposal with a prenup. In the flush of good feeling at the start of a new chapter in life, it's hard to react to a legal document governing what happens if and when the relationship ends. But this is a job, not a marriage, and the end is more likely a "when" than an "if." You owe it to yourself to give your noncompete a very close read, preferably with a lawyer's help, and to negotiate its details with your future employer before signing anything -- including the job offer. What makes noncompete agreements so common nowadays is that from a company's perspective every new hire creates a new login and password that can give a relative stranger the keys to the kingdom. A job-hopping workforce plus mobile networked computing adds up to greater risk of damaging information loss and client defection than ever before.

So employers are relying more on noncompetes and related non-disclosure agreements, which typically bar departing employees from taking proprietary information; from poaching employees; from soliciting clients; and (most burdensome of all) from moving to a competing employer or starting a competing business for a period of time, often a year or two. Strictly speaking, signing and adhering to a noncompete can mean that unless you retire at this job -- a prospect neither party probably expects -- you are agreeing to undergo a significant future disruption in your life such as moving, changing careers, or spending a year or two out of work.

I'm often asked just how legally enforceable noncompete agreements really are. I've certainly heard and read plenty of stories about noncompetes being struck down in court. However, three caveats: First, as a non-lawyer, I'm not a source of legal advice; second, from an ethical standpoint you shouldn't sign something you don't intend to honor; third, as a practical matter you don't want to pit yourself against a company that probably has a lot more money, patience and legal firepower on hand than you do. The better strategy is to try negotiating noncompete terms you can live with. It's important to do this before signing the job offer, while you still have negotiating leverage. Once an employer has extended the job offer, they want to resolve any negotiations quickly and bring you on board. As long as you raise issues in a courteous, reasonable way, they may be willing to bend on some of the legal fine points of the noncompete.

Keep your tone detached and professional; don't let the exchange get personal or emotional. You need to stick up for what's important to you while preserving the atmosphere of mutual trust and goodwill. Emphasize that you take the noncompete agreement very seriously -- both because you respect the company's legitimate right to protect itself, and because if you and the company ever do part ways, you intend to honor the agreed-upon terms. Make it clear that you are just looking for a fair balance that protects the company while not placing unreasonable burdens on you.

There are reasonable changes you can ask for that protect your future flexibility without harming the company. For example: Add an exhibit to the noncompete agreement that lists any client relationships, business contacts and other valuable information assets (such as documents, analytical models and methodologies) that you are bringing in. Request that these be exempted from the company's blanket ban on leaving with proprietary information, since these assets are yours to begin with.

Parse the company's noncompetition terms, which are likely to be broadly and vaguely worded. Try to limit their scope by crafting narrower definitions of the appropriate geographic range, industry sectors, service offerings, clients and types of clients where they are asking you to refrain from competing. Let the company protect its immediate turf, while giving you latitude to move to job that might be in the same general industry space but not in direct competition.

If a company wants you to spend a period of time not working for a competitor or starting a competing business, ask for severance compensation and benefits to cover that period of time. This may be a stretch, but nothing ventured, nothing gained.

Ask for a clause releasing you from the noncompete in the event that the company changes ownership, or in the event you are terminated in a non-performance-related restructuring. Be careful to frame this in a way that will not give the company an incentive to claim to be terminating you for performance.

When you leave a job where you have a noncompete agreement in place, you may be asked to sign something new, or something reaffirming your existing agreement, upon departure. My feeling is that you should not sign any exit agreements unless there is some type of carrot offered, such as severance compensation in exchange for signing. Also, before taking a new job, you should go over your noncompete with your new prospective employer. In the event that your former employer did come after you for something you did (or it believed you did), you would want your new employer's lawyers to go to bat for you. You would also need to compare a new noncompete to your old one, to make sure there are no conflicting terms. If there are, your new employer needs to understand that you can't agree to those terms unless they assume responsibility for any legal issues that could result.
peterg@qstaff.com

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