The term non-compete agreement, more formally known as a covenant not to compete, tends to cover three aspects of employment:
- A traditional non-compete contract prohibits an employee from going to work for a competitor identified by name or description during a specific period of time and within a specific geographical area.
- Non-solicitation agreements prohibit former employees from approaching customers, poaching employees, and/or approaching suppliers of a former employer.
- A confidentiality agreement bars the use of or revealing proprietary information belonging to a former employer such as trade secrets or client lists.
The advice in this post is generally about the traditional non-compete agreement but could be used in cases of the other two aspects.
Non-Compete Agreements Are State Law
Non-compete agreements are governed by state law, not federal; and not all states support non-compete agreements. In states where the agreements are supported, the terms of enforceability often differ from state to state.
For example, in Texas, a non-compete is only enforceable if it meets two other criteria:
- it must be ancillary to another agreement, and
- it must be reasonable.
How the Court Views a Non-Compete Agreement
The biggest concern of the court that hears a non-compete case is whether the terms of the contract are reasonable. The court considers five points:
- Potential harm to the employer, which the employer must establish.
- The specified time period, which may depend on the type of job and level of authority.
- Territorial prohibitions.
- The impact on the employee: does it keep the employee from making a living or must the employee relocate to use skills or experience, for example. (Each state views this differently.)
- The interest of the general public, which means whether or not the non-compete contract squelches competition to the point the employer creates a monopoly.
How to Challenge a Non-Compete Agreement
There are at least eight different points where you can challenge a non-compete agreement with a high potential for getting it waived or receiving an agreement that it will not be enforced by the employer.
1. No Violation of Terms
Show that your new job would not violate the precise terms of the non-compete contract.
Get a copy of your contract from your current or former employer. Typically, you can obtain it from human resources. Read it carefully; the terms may not have the limits you assume.
2. Shady Employer
If you can show that your current or former employer engaged in or asked you to act illegally or dishonestly towards its customers, you can easily challenge a non-compete agreement because the employer will not want it known that it is engaging in illegal business acts. Just be tactful instead of threatening when you bring it up.
3. Lack of a Legitimate Business Interest
Non-compete agreements are usually meant to protect company trade secrets or proprietary information. If you did not have access or exposure to information of this sort in your position, you can make the case that the non-compete should not be enforced because there is no legitimate business interest to protect.
4. Unreasonable Terms
Some employers ask for overly broad limitations, intentionally or unintentionally. Smaller companies may be using a contract found on the internet that does not fit their business. An employee who signs such an agreement can challenge it on these grounds.
The concept of unreasonable terms includes times when a company only does business in one state. That company cannot block you from working in the same industry or position in another state where it does not do business.
Another example of unreasonable terms is if the company operates in a specific niche of a market or industry. A non-compete agreement should not keep you out of an entire sector.
In the case of insider knowledge and proprietary information, asking you to be barred from employment for more than the rest of the fiscal year may not be reasonable. Particularly in the world of high-tech, changes occur so quickly that any special knowledge would be out of date within a month or so. Asking for you to stay out of the business for five years is not reasonable.
5. Employer Breaches Employment Contract
Most states that support non-compete agreements do so on the proviso that there is an equal agreement or contract by which the employer is bound. Typically it is the employment contract.
If you can show the employer did not abide by all of the terms of your employment contract, it is highly unlikely you can be forced to follow the non-compete agreement you signed with that employer.
6. You Were Tricked into Signing
Did the employer make verbal promises to get you to sign a non-compete agreement and then not follow through on them? Maybe you were told the non-compete contract would only be enforced if you went to a specific employer but your former employer enforces it regardless of who you go to work for.
The best thing to do under any circumstance where promises are made verbally is to find a way to get them put into writing. One way of doing so it to email the employer and request clarification of the promise(s).
Save the email response as it could be used as evidence if you ever need to challenge your non-compete agreement based on those promises.
7. Show Termination without Cause
The courts do not always rule consistently on this point, but if you are part of a mass layoff or have been terminated from employment and yet did nothing wrong, any non-compete agreement you signed may be considered null and void.
8. Unsigned Non-Compete Agreement
This would be easy to prove. If you do not recall signing a non-compete agreement, ask for a copy. Do not assume the employer is in possession of a valid contract.
Non-compete agreements or Covenants Not to Compete are becoming more common in the world of employment. Employees are being asked to sign them regardless of the position they hold, their level of authority or knowledge, or any other particular reason.
Unless you understand the agreement you are being asked to sign; you are perfectly within your rights to ask to read it carefully or have a lawyer take a look at it. Never allow a non-compete agreement keep you from pursuing other employment and keep in mind the reasons it may not be enforceable.
If you are in the job market and you know you signed a Covenant Not to Compete with a former employer, approach that employer before you start applying for a new job.
Send an email to someone in authority and include one or more of the reasons you think the non-compete agreement is invalid in your case. Save the response if the former employer says it will not be enforced so you can show potential employers there is nothing to bar you from employment with them.
If the former employer insists on enforcing the agreement, hire a lawyer specializing in employment law to write a letter to the employer. You will probably be released from the agreement at that point. If not, you may need to go to court.