Sponsored By
Barry Shanoff

May 1, 2007

3 Min Read
Stiff Non-Competition

AFTER FOUR YEARS as a successful sales representative for a waste equipment manufacturer, Matt Barger (not his real name) decided it was time to move on.

He knew what he knew: the business, the customers, how to close a sale. He could be persistent and still be charming. His style worked equally well with “mom and pop” companies and municipal solid waste directors.

Barger began making discreet inquiries. He wanted not even a hint of his plans to reach his boss. He arranged the interviews and conversations in out-of-the-way places, and always used a personal, not company, cell phone for his calls.

Finally, a prominent firm made him an offer he felt he couldn't refuse. Commissions, bonuses, benefits — the offer was as good as it gets. One catch: the company wanted him to sign a contract with a non-compete clause.

Barger wasn't bent on undermining his would-be employer's best interests, but the restrictions seemed somewhat onerous. He took it as a good sign, however, that the company was unfazed when he asked for time to show the agreement to his lawyer before taking the job. In fact, the firm's sales chief encouraged him to do so.

Employers insist on non-compete clauses to protect trade secrets, customer lists and other inside information. They worry that departed employees will use this valuable, sensitive company “property” to their personal advantage. Non-compete agreements restrict what kind of work or services ex-employees can perform, where they can work and for whom. For the most part, these restrictions can be enforced for a “reasonable” amount of time. A limitation lasting two or three years will likely be upheld. A longer duration would need considerable justification.

Non-compete agreements are generally enforceable under the law in many states (such as Florida and New York), but some jurisdictions (California, for example) have ruled them illegal restraints on trade. Where they are banned, employers may resort to non-solicitation or non-disclosure agreements.

As Barger was an exceptional job candidate, his lawyer was able to negotiate slightly more favorable terms in the non-compete clause. The excluded territory — that is, the states and localities where he would be allowed to work without restriction after leaving the fold — was enlarged, and the time period of the restriction was reduced from four years to 30 months. Other prospective employees who bring less to the table than did Barger would likely be less fortunate.

Violating a non-compete agreement can be a costly decision. Some employers will relentlessly pursue former employees who ignore the restrictions. The litigation can drag on for months and, unless a new employer is openly or covertly funding the defense, can drain the employee's savings.

A judge who sides with a former employer often will issue an injunction forcing the ex-employee to leave his or her new job and award damages for lost profits. If, as the case may be, the new employer also is named as a defendant, a money judgment may be entered against it as well.

Non-compete agreements are an employment fact-of-life. Job seekers in the solid waste services or waste equipment fields don't have much choice. They have to sign the agreement or keep sending out resumes.

Barry Shanoff Legal Editor Rockville, Md.

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