Non-compete Agreements Aren’t Going Anywhere: What to Know If You Sign One

New York
CNN
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Late last month, a Texas judge struck down a nationwide ban on noncompete agreements that was set to go into effect next Wednesday.

Existing noncompete agreements will remain in effect. And employers can continue to ask you to sign one as a condition of employment. That is, until a higher court rules otherwise or Congress passes a law prohibiting it. But if that happens, it could take years.

In the meantime, if you’re working under a non-compete 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 Non-Compete Agreement Requires

Generally speaking, non-competes prohibit you from working for your employer’s competitors within a certain geographic distance for a specified 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 you leave.

So understand exactly what restrictions will apply to you if you leave your current job — whether you resign, are fired, or are fired for cause — and what, if anything, you’ll receive in exchange for giving up your right to work wherever you want.

You should also understand how your competitors’ location is defined, as your contract may prevent you from working for a company located within a certain distance not only from your workplace, but also from your company’s branches.

“Read your contract. 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 attorneys in their state to advise them on noncompete agreements and other matters for a small fee or for free when they sign up for a monthly plan that costs just under $30 and can be canceled at any time.

Also, when considering signing a noncompete agreement, “think about it in the context of your career path,” Fiffik suggested. He means that if your industry is typically about getting promoted every few years, signing a noncompete agreement could be problematic.

And in general, everyone should review the documents they sign when they take a job because they may not even be aware they signed them, said Donna Ballman, a Florida workers’ comp attorney and author of “Stand Up for Yourself Without Getting Fired.”

“Some (non-compete provisions) are disguised as ‘non-disclosure agreements’ or ‘bonus agreements’ and even (may appear) on job applications. Most people sign that giant stack of paperwork they get when they first start their employment without reading it carefully,” Ballman wrote in an email to CNN.

The state where you work may have restrictions or outright prohibitions that could invalidate your noncompete. Start by checking online with your state’s Department of Labor and your state’s attorney general. This interactive map, from Economic Innovation Group, also provides a quick overview of current state restrictions and prohibitions.

For example, California has enacted two new laws that confirm and clarify what has been true since the 19th century: According to Robert Ottinger, founder of Ottinger Employment Lawyers, non-compete clauses are, with few exceptions, illegal and unenforceable.

That applies to anyone in California who is employed by a company based elsewhere or whose job has been transferred to California. “The minute you step foot in California, (the noncompete agreement) evaporates,” Ottinger said, even if he claims to be covered by another state’s law.

In New York, many contracts are unenforceable because they fail the multi-part test required by the state for such contracts to be valid, including not imposing an undue hardship on the employee. In Ottinger’s experience, “there’s a 90 percent or greater chance they’re going to be invalid. … If you take it to a judge, the judge won’t enforce it,” he said. That’s especially true for entry-level and mid-level workers, he added. “We’ve had dog walkers and sandwich makers get hit with this. We win almost every time.”

In contrast, many other states are imposing far fewer restrictions. And some, like Kansas and South Carolina, are imposing no restrictions at all, according to the Economic Innovation Group.

Even if employees have the least protection under state law, you may still have legal protections if you believe your non-compete agreement is egregious.

“Federal and state antitrust laws still apply, so it is still illegal to enter into noncompete agreements 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 provided by the employer, or a special customer relationship established as a result of employment,” Ballman said.

The Federal Trade Commission, which created the now-repealed rule banning noncompetes, notes that it is not without authority to “address noncompete cases by taking enforcement actions on a case-by-case basis.”

Ballman said there are some defenses to noncompetes that most states will recognize. “These include situations where the employer is first in breach of the contract, where there is no legitimate interest to protect beyond preventing competition, where the duration or scope is overly broad, or where the public health or safety would not be protected.”

And there may be other ways to prove your noncompete is illegal, especially if the employer shows that it is intended to protect confidential information. For example, Ballman said, “many employers don’t take steps to protect so-called confidential information. If it’s on a website, if they allow some employees to compete but not others, if they brag about clients on social media, that’s a great argument that the information isn’t confidential at all.”

Still, “there’s no magic wand that’s going to get you out of this,” she added. So knowing what you’re getting into before you sign anything and consulting with an experienced employee-side employment attorney in your state can save you a lot of time and stress when you finally do move on to a new job.