Freedom Quest: Unlocking Career Shackles—The Many Ways Employment Non-Compete Agreements Can Be Rendered Unenforceable
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published May 28, 2007
Jeff Isaac
<<By definition, a non-compete agreement binds the employee to not compete, directly or indirectly, with the employer and/or work for a competitor after termination of the employment relationship. For courts, however, the definition and enforceability of this document is not so clear-cut. Such agreements are rife with legal loopholes and "gray areas" that are contingent upon the drafting and implementation, which can differ from one employer to another. The merit of these documents can also vary from state to state, with some states—but not all—classified as "right-to-work" territories, rendering some non-compete agreements null and void.
Far too many job seekers do not read or entirely understand the fine print of non-compete agreements and do not inherently know what constitutes one that is rightful versus one that is wrongful. While it's understandable that employers want to establish a measure of security against unfair competition by former employees, these documents are often far too restrictive with respect to the professional's right to earn income within the industry where his or her skills are most applicable.
How does an employee know if he or she is, in fact, truly bound and restricted by a non-compete agreement he or she has signed? Here are some of the many shortcomings that can render a signed non-compete agreement non-enforceable:
Geographic Scope: Non-competes that have too large of a geographic scope are more likely to be denied by the courts. While this is still subjective to the court's opinion on the matter, an argument can surely be made if the region the non-compete agreement covers is all-encompassing.
Duration: Many states are more likely to void an unreasonable restriction rather than modify it. For example, if a two-year duration is specified in the agreement and the court considers this duration unreasonably long, it may nullify the restriction entirely rather than upholding it for a shorter duration.
Activity Scope: If the employer has been too broad relative to the activities it is attempting to restrict, then the courts will likely rule in your favor. Often, non-compete agreements are considered unreasonable if the intended scope is beyond that related to the company's direct competitors and established customers and/or clients.
Consideration of Compensation: Courts are also unlikely to enforce a non-compete agreement if the opportunity for adequate consideration is not provided at the time of signature so that an informed decision can be made at that time. At the onset of an employment arrangement, the job itself is deemed adequate consideration. So the odds are in favor of those required to sign non-compete agreements well after their employment start dates. And if the employee is already a part of the organization, the agreement is not likely to be enforced by the courts unless the employer makes it readily apparent that it offered additional consideration—salary increase, improved benefits, etc.—beyond the job itself in exchange for the constraints it sought to place upon him or her.
State and Local Laws: In some states, non-competes are not legal and will not be supported by the courts. In California, for example, a non-compete agreement is only enforceable with respect to the sale of a business. Employers in this state cannot, however, restrict the livelihoods of their current or former employees.
Departure Considerations: Whether or not a court will support a non-compete agreement might also depend on why you left the company. For example, if your employer fires you for "good cause" or if you quit to take a new job, it might be enforceable. But if your company fires you or if you resign for reasons beyond your control, such as company-wide layoffs, permanent disability, and the like, the court may not enforce a duly signed non-compete agreement. If, however, you have been fired for "good cause" or if you resign to take another job, you may be out of luck.
While some employers know all too well that their non-compete agreements are not enforceable in a court of law, many often require new hires to sign them anyway, hoping their employees will not know the documents are not legally binding, and thus achieving mental servitude, or hoping to otherwise intimidate their new hires in attempts to protect their companies' interests. Therefore, even if you have signed a non-compete agreement, do diligence to see what rights you do or do not have with respect to your specific draft of this so-called employment contract—you may be free of those "shackles" to seek whatever employment you desire after all.
About the Author:
Jeff Isaac, Esq., a.k.a. "The Lawyer in Blue Jeans," is a veteran attorney who offers down-to-earth legal perspective on issues affecting individuals—and society at large—on a day-to-day basis. He can be reached through his website at www.LawyerInBlueJeans.com.
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