Noncompete agreements aren’t going anywhere. What to know if you sign one
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CNN
—
A Texas judge late last month struck down a nationwide ban on noncompete agreements that was supposed to take effect this Wednesday.
Existing noncompete agreements will therefore now remain in place. And employers may still ask you to sign one as a condition of employment. That is, unless and until a higher court decides otherwise, or Congress passes a law prohibiting it. But, if that does happen, it could take years.
In the meantime, if you're working under a noncompete agreement, or are considering signing one, here's what you need to know and do, because in some cases the agreement may not be enforceable.
1. Understand what your noncompete requires
Generally speaking, noncompetes prohibit you from working for your employer's competitors within a given geographic distance for a given period of time. For example, you may be prohibited from working for a competitor within 50 miles of your current job for a year after leaving.
Signage is seen at the Federal Trade Commission headquarters in Washington, DC, August 29, 2020.
Andrew Kelly/Reuters
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So, understand exactly how you will be constrained when you leave your current job, whether you quit, get laid off or are fired for cause, and what, if anything, you are getting in exchange for signing away your right to work where you wish.
Also understand how the location of competitors is defined, because the agreement might preclude you from working at a company within a given distance not just from your own work site, but also that of your company's satellite locations.
"Read your agreement. You'd be surprised how many people don't," said Michael Fiffik, managing partner of Pennsylvania-based Fiffik Law Group PC. His law firm also provides services through LegalShield, which connects people with lawyers in their state to advise them on their noncompete agreements and other matters at little to no charge when they sign up for a monthly plan that costs just under $30 and can be canceled at any time.
Also, when considering whether to sign a noncompete, "think about it in the context of your career path," Fiffik suggested. By that he means if it's typical in your line of work to move up by moving on every few years, signing a noncompete might be problematic.
And, in general, everyone should review the paperwork they signed when they took their job, because they may not even be aware they signed one, said Donna Ballman, an employee-side employment law attorney in Florida and author of "Stand Up For Yourself Without Getting Fired."
"Some (noncompete provisions) are disguised as a ‘confidentiality agreement' or ‘bonus agreement,' or even (may appear) in job applications. Most people sign that giant stack of paperwork they get at the beginning of their employment without reading it carefully," Ballman wrote in an email to CNN.
2. Find out if your state restricts noncompetes
The state where you're working may impose restrictions or outright bans, which may render your noncompete invalid. Start by checking online with your state's labor department and the state's attorney general. This interactive map, from the Economic Innovation Group, also provides a quick rundown of current state restrictions and bans.
For instance, in California, two new laws went into effect reiterating and making plain what has been true since the 1800s: Noncompetes are, with few exceptions, unlawful and unenforceable, according to Robert Ottinger, founder of Ottinger Employment Lawyers.
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That includes anyone in California who is employed by a company headquartered elsewhere or whose job is relocated to California. "The minute you set foot in California, [the noncompete agreement] evaporates," Ottinger said, even if it says it is subject to the laws of another state.
In New York, many agreements are unenforceable because they don't meet the multipart test the state requires of such agreements to be valid, including not imposing undue hardship on an employee. In Ottinger's experience, "there's a 90% or higher chance of it being invalid. … If you take it before a judge, the judge will not enforce it," he said. That is especially the case for low- and mid-level workers, he added. "We've had dog walkers and sandwich makers subject to them. We win almost every time."
By contrast, many other states impose far fewer restrictions. And some, like Kansas and South Carolina, impose none at all, according to the Economic Innovation Group.
3. Even absent state restrictions, antitrust laws still apply
Even where workers are least protected by state law, you still may have recourse if you feel your noncompete agreement is egregious.
"Federal and state antitrust law still applies, so it's still illegal to have a noncompete agreement for the purpose of preventing competition. Employers must have a legitimate interest to protect, such as protecting confidential information or trade secrets, customer goodwill, extraordinary or specialized training the employer provided, or special relationships with customers developed as a result of the employment," Ballman said.
And the Federal Trade Commission, which created the now struck-down rule banning noncompetes, notes that it is not prevented from "addressing noncompetes through case-by-case enforcement actions."
Ballman said that there are some defenses against a noncompete that most states will recognize. "These include where the employer breaches the agreement first, where there is no legitimate interest to protect other than preventing competition, where the length of time or the scope is overbroad, or where public health or safety would not be served."
And there may be other ways to prove your noncompete is illegitimate, especially when the employer indicates that it is intended to protect confidential information. For instance, Ballman said, "many employers don't actually take measures to protect that so-called confidential information. If it's on the website, if they allow some employees to compete but not others, if they brag about customers on social media, then there's a great argument that the information isn't confidential after all."
All that said, "there's no magic wand to get out of these," she added. So, knowing what you're getting into before signing anything and consulting with a knowledgeable employee-side employment attorney in your state may save you a lot of time and stress when you do eventually move on to a new job.
