Many companies use non-compete agreements to prevent selected employees from using trade secrets, customer relationships, and commercially sensitive information to the competitive disadvantage of the employer after the employment relationship ends. These non-compete agreements, sometimes drafted by experienced counsel but often a mark-up of a “template” found on the Internet or from a precedent in the company’s files, range from well drafted to clearly unenforceable. There are some general rules that apply to these agreements, but the operative word is “general”. Court cases and governing statutes vary from state to state—over a wide spectrum of results—so the “general rules” are really just an a group of common themes that have several important exceptions.
One general rule applied by courts is that a non-compete agreement must balance the rights of the individual to pursue employment or business opportunities matching his or her experience and qualifications against the rights of the employer to protect propriety information and customer relationships that have been developed at the employer’s expense. No one would quarrel with the need for such a balance but the “balance” of competing interests is quite often a subjective determination. The balancing is normally expressed as the need for reasonable limits on the term of the non-compete provisions and geographical area to which they apply. In addition, the restrictions on the individual’s post-employment activities should bear a reasonable relationship to his or her responsibilities at the former employer. For example, a sales person who sells specialized computer software to banks might be prevented from selling competing software to the same banks post-employment, but that does not mean the courts would uphold a restriction so broadly drafted that it prevented the former employee from selling media services to those same banks.
Another general rule is that there should be some consideration given by the employee for his or her agreement to be bound by non-compete provisions. Again, the exceptions are just as important as the rule. Some states, such as New York and Connecticut, consider continuing employment to be adequate consideration for a non-compete agreement. Other states require that some benefit be given to the employee in exchange for the employee’s agreement. This benefit might be the commencement of employment, a bonus, an award under a stock or option plan, or access to confidential information. A third group of states requires that actual value be given by the employer and the courts in those states may scrutinize the exchange to see if what the employee received is something he or she would have received even in the absence of the non-compete agreement.
Added to all of this—sometimes superseding it—are statutory requirements imposed by more than twenty states, which range from pro-individual to pro-employer. Here is a summary (note that these statutes are paraphrased; different restrictions often apply in the sale of a business or an ownership interest, the dissolution of a partnership, and restrictions on the practice of physicians or individuals working in the broadcasting industry):
|Alabama||Ala. Code § 8-1-1||One who is employed as an employee may agree with his employer to refrain from carrying on or engaging in a similar business and from soliciting old customers of such employer within a specified county, city, or part thereof so long as the employer carries on a like business therein|
|California||Cal. Bus. & Prof. Code §§ 16600 – 02||Every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.|
|Colorado||Colo. Rev. Stat. § 8-2-113||Any covenant not to compete which restricts the right of any person to receive compensation for performance of skilled or unskilled labor for any employer shall be void, but this shall not apply to any contract for the protection of trade secrets.|
|Delaware||Del. Code Ann. Title 6 § 2707||Applies only to non-compete agreements that to attempt to restrict physicians|
|Florida||Fla. Stat. § 542.335||In the case of a restrictive covenant sought to be enforced against a former employee, agent, or independent contractor, a court shall presume reasonable in time any restraint 6 months or less in duration and shall presume unreasonable in time any restraint more than 2 years in duration.A court shall construe a restrictive covenant in favor of providing reasonable protection to all legitimate business interests established by the person seeking enforcement. A court shall not employ any rule of contract construction that requires the court to construe a restrictive covenant narrowly, against the restraint, or against the drafter of the contract.|
|Georgia||Ga. Code Ann. § 13-8-50||“reasonable restrictive covenants contained in employment and commercial contracts serve the legitimate purpose of protecting legitimate business interests and creating an environment that is favorable to attracting commercial enterprises to Georgia and keeping existing businesses within the state.”|
|Hawaii||Hawaii Rev. Stat. §§ 480-4(c), 607-14.9||It shall be lawful for a person to enter into a covenant or agreement by an employee or agent not to use the trade secrets of the employer or principal in competition with the employee’s or agent’s employer or principal, during the term of the agency or thereafter, or after the termination of employment, within such time as may be reasonably necessary for the protection of the employer or principal, without imposing undue hardship on the employee or agent.In a civil action which involves the interpretation or enforcement of an agreement or alleged agreement which purportedly restricts an employee from competing with an employer, or former employer, or working for a competitor of an employer or former employer, any employee or former employee who prevails shall be awarded reasonable attorneys’ fees and costs.|
|Illinois||820 ILCS 17/1, 5, 10 and 15||Applies only to broadcasting industry employees|
|Louisiana||La. Rev. Stat. Ann. § 23:921||Any person, including a corporation and the individual shareholders of such corporation, who is employed as an agent, servant, or employee may agree with his employer to refrain from carrying on or engaging in a business similar to that of the employer and/or from soliciting customers of the employer within a specified parish or parishes, municipality or municipalities, or parts thereof, so long as the employer carries on a like business therein, not to exceed a period of two years from termination of employment. An independent contractor, whose work is performed pursuant to a written contract, may enter into an agreement to refrain from carrying on or engaging in a business similar to the business of the person with whom the independent contractor has contracted, on the same basis as if the independent contractor were an employee, for a period not to exceed two years from the date of the last work performed under the written contract.|
|Maine||Me. Rev. Stat. Title 26 § 599||Applies only to broadcasting industry employees.|
|Massachusetts||Mass. Gen. Laws Ch. 112 § 12x, Ch. 149 § 186||First applies only to physicians. Second applies only to broadcasting industry employees.|
|Michigan||Mich. Comp. Law § 445.774a||An employer may obtain from an employee an agreement or covenant which protects an employer’s reasonable competitive business interests and expressly prohibits an employee from engaging in employment or a line of business after termination of employment if the agreement or covenant is reasonable as to its duration, geographical area, and the type of employment or line of business. To the extent any such agreement or covenant is found to be unreasonable in any respect, a court may limit the agreement to render it reasonable in light of the circumstances in which it was made and specifically enforce the agreement as limited.|
|Missouri||Mo. Rev. Stat. § 431.202||A reasonable covenant in writing shall be enforceable if: (i) between an employer and one or more employees seeking on the part of the employer to protect: (a) confidential or trade secret business information; or (b) customer or supplier relationships, goodwill or loyalty, which shall be deemed to be among the protectable interests of the employer; or (ii) between an employer and one or more employees, notwithstanding the absence of the protectable interests described in clause (i), so long as such covenant does not continue for more than one year following the employee’s employment; provided, however, that this subdivision shall not apply to covenants signed by employees who provide only secretarial or clerical services.|
|Montana||Mont. Code Ann. §§ 28-2-703 to 705||Any contract by which anyone is restrained from exercising a lawful profession, trade, or business of any kind, is to that extent void, except in connection with the sale of a business or the dissolution of a partnership.|
|Nevada||Nev. Rev. Stat. § 613.200||Any person within this state who willfully does anything intended to prevent any person who for any cause left or was discharged from his or its employ from obtaining employment elsewhere in this state is guilty of a gross misdemeanor and shall be punished by a fine of not more than $5,000, except this shall not apply toan agreement with an employee of the person, association, company or corporation which, upon termination of the employment, prohibits the employee from: (a) pursuing a similar vocation in competition with or becoming employed by a competitor of the person, association, company or corporation; or (b) disclosing any trade secrets, business methods, lists of customers, secret formulas or processes or confidential information learned or obtained during the course of his employment with the person, association, company or corporation, if, in the case of (a) or (b), the agreement is supported by valuable consideration and is otherwise reasonable in its scope and duration.|
|North Carolina||N.C. Gen. Stat. § 75-4||No contract or agreement limiting the rights of any person to do business anywhere in the State of North Carolina shall be enforceable unless such agreement is in writing duly signed by the party who agrees not to enter into any such business within such territory, provided, nothing herein shall be construed to legalize any contract or agreement not to enter into business in the State of North Carolina, which contract is made illegal by any other section of this Chapter. [Note: Covenants not to compete in NC will be enforced if they are, “(1) in writing, (2) part of the contract of employment or sale of the business, (3) based on valuable consideration, (4) reasonably necessary for the protection of the employer’s interest, and (5) reasonable as to time and territory.” ChemiMetals Processing, Inc. v. McEneny, 476 S.E.2d 374, 376 (N.C. Ct. App. 1996).]|
|North Dakota||N.D. Cent. Code § 9-08-06||Every contract by which anyone is restrained from exercising a lawful profession, trade, or business of any kind is to that extent void, except in connection with the sale of a business or the dissolution of a partnership.|
|Oklahoma||Okla. Stat. Title 15 § 217-219a||Every contract by which any one is restrained from exercising a lawful profession, trade or business of any kind, is to that extent void, except (i) in connection with the sale of a business or dissolution of a partnership and (ii) a person who makes an agreement with an employer, whether in writing or verbally, not to compete with the employer after the employment relationship has been terminated, shall be permitted to engage in the same business as that conducted by the former employer or in a similar business as that conducted by the former employer as long as the former employee does not directly solicit the sale of goods, services or a combination of goods and services from the established customers of the former employer. Any provision in a contract between an employer and an employee in conflict with the provisions of this section shall be void and unenforceable.|
|Oregon||Or. Rev. Stat. § 653.295||A noncompetition agreement entered into between an employer and employee is voidable and may not be enforced by a court of this state unless: (i) the employee is engaged in administrative, executive or professional work who (a) performs predominantly intellectual, managerial or creative tasks, (b) exercises discretion and independent judgment; and (iii) earns a salary and is paid on a salary basis; or (ii) if the employee is not described in clause (i), the employer informs the employee in a written employment offer received by the employee at least two weeks before the first day of the employee’s employment that a noncompetition agreement is required as a condition of employment; or the noncompetition agreement is entered into upon a subsequent bona fide advancement of the employee by the employer. In addition, the employer must have a protectable interest, i.e., the employee has access to trade secrets, or to competitively sensitive confidential business or professional information that otherwise would not qualify as a trade secret, including product development plans, product launch plans, marketing strategy or sales plans. The term of a noncompetition agreement may not exceed two years from the date of the employee’s termination. The remainder of a term of a noncompetition agreement in excess of two years is voidable and may not be enforced by a court of this state. None of foregoing language applies to Bonus Restriction Agreements or covenants not to transact business with customers of the employer. “Bonus restriction agreement” means an agreement, written or oral, express or implied, between an employer and employee under which (i) competition by the employee with the employer is limited or restrained after termination of employment, but the restraint is limited to a period of time, a geographic area and specified activities, all of which are reasonable, (ii) the services performed by the employee pursuant to the agreement include substantial involvement in management of the employer’s business, personal contact with customers, knowledge of customer requirements related to the employer’s business or knowledge of trade secrets or other proprietary information of the employer; and (ii) the penalty imposed on the employee for competition against the employer is limited to forfeiture of profit sharing or other bonus compensation that has not yet been paid to the employee.|
|South Dakota||S.D. Cod. Laws § 53-9-8 to 11||Any contract restraining exercise of a lawful profession, trade, or business is void to that extent, except (i) in connection with the sale or a business or dissolution of a partnership, and (ii) an employee may agree with an employer at the time of employment or at any time during his employment not to engage directly or indirectly in the same business or profession as that of his employer for any period not exceeding two years from the date of termination of the agreement and not to solicit existing customers of the employer within a specified county, first or second class municipality, or other specified area for any period not exceeding two years from the date of termination of the agreement, if the employer continues to carry on a like business therein.|
|Texas||Tex. Bus. & Com. Code Ann. § 15.50-52||A covenant not to compete is enforceable if it is ancillary to or part of an otherwise enforceable agreement at the time the agreement is made to the extent that it contains limitations as to time, geographical area, and scope of activity to be restrained that are reasonable and do not impose a greater restraint than is necessary to protect the goodwill or other business interest of the promisee.|
|Wisconsin||Wis. Stat. § 103.465||A covenant by an assistant, servant or agent not to compete with his or her employer or principal during the term of the employment or agency, or after the termination of that employment or agency, within a specified territory and during a specified time is lawful and enforceable only if the restrictions imposed are reasonably necessary for the protection of the employer or principal. Any covenant imposing an unreasonable restraint is illegal, void and unenforceable even as to any part of the covenant or performance that would be a reasonable restraint. [Note: Wisconsin courts frequently invalidate non-compete agreements that are overly broad in any respect.]|
Finally, there is the “blue-pencil” doctrine and the doctrine of “equitable reformation”. In states where one of these doctrines applies, the courts may modify a non-complete agreement if it imposes unreasonable restrictions on the former employee. Under the blue-pencil doctrine, a court can “blue pencil”, or cross out, the words that create the unreasonable restriction, provided that the agreement is otherwise reasonable without the excised portion. Under the doctrine of equitable reformation, the court will rewrite the restriction so that it meets the requirements of reasonableness, even if this rewriting involves more than striking certain words from the agreement.
In states that do not apply the blue-pencil or equitable reformation doctrines, some states hold that a non-compete agreement that goes too far is simply not enforceable. Other states have not decided the issue.
States that allow blue-lining or equitable reformation, either through statute or case law, are Alabama, Arizona, Connecticut, District of Columbia, Florida, Georgia, Idaho, Illinois, Indiana, Iowa, Kansas, Maryland, Michigan, Minnesota, Mississippi, Missouri, New Hampshire, New Jersey, New York, North Carolina, Oklahoma, Oregon, South Carolina, South Dakota, Texas and Vermont (unless, in the case of Vermont, the covenant as a whole evidences an intention to place an unreasonable and oppressive restraint on the employee, in which case the entire covenant will be invalidated).
“No modification” states are Arkansas, Louisiana, Nebraska, Oklahoma, Virginia, and Wisconsin
Of the remaining 18 states, six have statutes that make non-compete agreements void or subject to very narrow restrictions (California, Colorado, Hawaii, Montana, North Dakota and Oklahoma). The other 12 states are probably best described as open to argument in terms of modifying overly broad non-compete agreements. To be sure, non-compete agreements often contain their own “severability” clause with words such as, “If any provision or portion of this Agreement is for any reason held to be invalid, illegal, or unenforceable in any respect, the invalidity, illegality, or unenforceability shall not affect any other provision, and this Agreement shall be equitably construed as if it did not contain the invalid, illegal, or unenforceable provision.” These clauses may have some influence in states that have not already adopted a position on modification of unreasonable non-compete agreements, but more likely courts in those states will view the severability clause as “boot-strapping” by the employer and they will analyze the issue as a question of whether public policy should favor the business interests of the employer or the employment opportunities of the individual.
Bottom line: Non-compete agreements are often drafted without much care, but they are frequently one of the first documents an employer looks for when a key employee announces that he or she is leaving.
I appreciate all of the information that you provided. I live in Oklahoma and am an independent contractor. I provide services to a variety of companies and agencies, both non-profit and private. The private agency has a non-compete clause that says that I will not compete with them by contracting directly with companies that I have provided services to through the agency, within 12 months in the state of OK. However, all of the information in your articles, plus the OK state law cited, uses “employee” and never mentions an independent contractor. I make my living contracting with companies and providing them with services. Can they reinforce their clause and control where I work when our relationship meets all of the requirements for us to have an independent contractor relationship? Your feedback would be very much appreciated. Thank you.
First, allow me to emphasize that this is not legal advice. The blog and responses to comments are merely general statements and opinions that are not tailored to the facts of any individual’s or company’s particular circumstances. That said, the reason restrictive covenants are discussed, and laws are written, with reference to “employees”, not independent contractors, is that only employees need protection from over-reaching employers, at least in theory. Independent contractors are presumed to have enough bargaining power to negotiate the terms of their contracts. That is, if a company seeking a contractor’s services is not willing to accept the contractor’s terms, the contractor can decline the opportunity and obtain work elsewhere. In contrast, an employee typically cannot change jobs, at least not easily, if the employer demands that the employee sign a restrictive covenant. Indeed, an employee may be faced with a dilemma: if they do not sign the covenant, they might be fired and then discover that they cannot find another job; alternatively, if they do sign the covenant they might be limiting their opportunities for future employment. You can see why the law wants to prevent coercive treatment of employees. The situations involving contractors are different. Your comment refers to restrictive covenants required by agencies that find work for contractors. Such agencies typically charge a administrative fee on top of the contractor’s rates or they negotiate one rate with the end-user and then negotiate a lower rate with the contractor, keeping the “spread” for themselves. It is not unusual for such agencies to ask the contractor to agree a restrictive covenant which says that the contractor will refrain from working directly for any end-user for a specified period of time if the end-used was introduced to the contractor by the agency. The agency is merely trying to protect its fee. In effect, the deal with the agency is that all work done for any end-user identified by the agency during the specified period will be deemed to be work produced through the agency, regardless of any direct relationship between the contractor and the end-user, and the agency will be entitled to its fee on all such work during the restricted period. Such restrictive covenants required by agencies are generally enforceable but there is an important difference between these restrictive covenants and those found in employer-employee situations. That is, an employer can actually prevent a former employee from going to work for a competitor, assuming the restrictive covenant is enforceable (the issue discussed in the blog). In contrast, if an agency places a contractor with an end-used and the contractor, in violation of a restrictive covenant, subsequently enters into a direct relationship with the end-user, the agency can only sue for the revenue that is loses as a result of the contractor by-passing the agency and working directly for the end-user during the period of the restrictive clause in the agency contract. Again, if you need advice for your specific situation, you should consult an attorney.
Generally, covenants not to compete are disfavored in Alabama as restraints on trade because they tend to “deprive the public of efficient service” and to “impoverish the individual.” However, Alabama also has a public policy of enforcing contracts freely entered into between the parties. Continuing employment is considered sufficient consideration in Alabama in exchange for the employee’s agreement. Note, however, a covenant that is signed prior to the actual commencement of an employee/employer relationship is unenforceable. That is, the employer/employee relationship must exist at the time the agreement is signed. This issue may be relevant in the context described in your comment.
A court in Alabama examining a covenant not to compete determines whether it is contrary to the public interest by looking at four factors: (i) does the employer have a protectable interest?; (ii) Is the restriction reasonably related to that interest?; (iii) is the restriction is reasonable in time and place?; and (iv) does the restriction place an undue hardship on the employee?
One Alabama court found an undue hardship on the employee where he was prohibited in engaging in “the only trade he [knows] and by which he [can] support himself.” Chavers v. Copy Products Co., 519 So.2d 942, 945 (Ala. 1988). In the Chavers case, the court found that a restriction preventing a copier repairman from working for two years within the copier servicing industry within 75 miles of his former employer imposed an undue hardship because the employee was not skilled in any other line of work.
It is important to consult an attorney about this because the actual wording of the agreement will usually determine the outcome. Often, a few words or the omission of a few words will make the difference between an enforceable contract and an unenforceable contract. Also, an experienced attorney who knows the local judges will usually have an idea of how a particular judge will rule on the question of a non-compete’s enforceability. And, lastly, there is a practical issue as well as a legal issue. The practical issue is that many prospective employers will not hire an individual who is subject to a non-compete restriction even if the non-complete appears to be unenforceable. Prospective employers simply do not want to be drawn into a dispute between an individual and his former employer. Unless an individual who is subject to a non-compete wants to bear the delay and expense involved in getting a court ruling that a non-compete agreement is unenforceable, one alternative is to ask an attorney for a written opinion that the non-compete, if the former employer seeks enforcement, should be found by a court to be unenforceable under the applicable law (assuming the attorney reaches this conclusion). This written opinion can then be shown to prospective employers and that might alleviate their concerns.
I was recently a member of an LLC in Utah that has now been legally dissolved. I live in New Jersey and had to sign a non-compete agreement in order to dissolve the LLC. I want to challenge the non-compete as it is extremely restrictive (global) and prohibits me from doing any business (photography) and even includes an area the company was not involved with (event planning). I do plan to consult a new attorney but curious if I have to address this in Utah or my home state.
The Corporation Secretary cannot and does not provide legal advice. That said, there are some issues you might want to discuss with your own attorney. First, with whom was your agreement that you would not compete? Was it with the other former members of the LLC? If so, what business interest were they tying to protect? Generally speaking, in the case of one former business owner being restricted from competing with other former owners, courts will only enforce a restrictive covenant to the extent that it protects a legitimate interest. This relates to the question of remedies. If you were to breach a contractual obligation, such as a restrictive covenant, the other party to the contract can seek only two remedies: an injunction to prevent further breaches of the obligation and actual monetary damages for past breaches. Courts are reluctant to grant injunctions and will do so only if the complaining party can show “irreparable harm” if the breaches continue. It is hard to see how business behavior in New Jersey or new types of business behavior can “irreparably harm” someone with business interests in Utah. It is possible, of course, but hard to see on the basis of the facts presented. Similarly, it is hard to see how the other former business owners with interests in Utah would suffer monetary damages from your business activities in New Jersey. Again, it all depends on the facts. But the point here is that courts do not award punitive damages for breach of contract. The law allows a party to a contract to breach the contract and pay actual monetary damages suffered by the other party, if any, and the complaining party must show what those damages were. In your case, it is hard to see what actual monetary damages–such as lost profits–would be caused if the restrictive covenant were to be breached. Thus, you might be better off seeing an attorney in New Jersey about the practical risks of ignoring the restrictive covenant, as opposed to seeing an attorney in Utah about getting a declaratory judgment from a court there stating that the restrictive covenant has only a narrow application or, possibly, that it is unenforceable because it is overly broad. The latter course of action will impose on you the cost of getting a court order in Utah whereas the former course would require the other business owners to sue you in New Jersey, which would be a cost to them with perhaps little prospect of success. Even if the contract requires you to pay the other side’s attorneys’ fees in any action to enforce the contract, courts will usually only award attorneys’ fees if the party seeking enforcement prevails on the merits of its complaint. Again, it all depends on the facts and your attorney will be able to advise you.
I appreciate all of the information that you provided. My company was recently acquired by a large company in which I was in a regional sales manager position that was specific niche. The acquiring company gave us all non-competes to sign… We rejected until we were offered jobs. They bent and granted a couple months until all the details of the acquisition were ironed out.. but our paychecks and benefits changed over on the day of the 1st non -compete, 2 months later I was given a new job and non-compete to sign with a new job that is a lateral move outside of sales dept in a educational role calling on many of the same customer base my team called on while managing. The job didnt actually happen (4weeks later)1st of the year.
The question I have-my non compete was given to me and then taken back. As an existing employee I was then told to sign the new Non-compete…it was tough since I was told sign it or else! I signed because I had to or else I was without a job.. I am considering a role with a competitor/ start-up world arena as a contract employee. The non-compete is reasonable but my job description changed along with the regions covered. old job was Northeast/midwest and new job is eastern US but not in a sales role . 12 months non solicitation of customers and 24 months of employees. The state of Michigan is where I would have to fight this if needed.. The fact I signed it under direst and I was not offered a penny more, not a promotion, considered lucky to have a job. Does the State of Michigan have a Consideration clause? Since I wasn’t given any stock, promotion, benefits, or anything that would be considered a step up to sign this non-compete. could it be nullified? reading so many conflicting thoughts Your feedback would be very much appreciated. Thank you
There are at least four factors that need to be considered in any analysis of a non-compete agreement. First, what state law applies? Second, what is the precise wording of the agreement (one wrong word, poorly chosen by the employer, can be the difference between lightening and a lightening bug)? Third, what are all–emphasis on “all”–the relevant facts (e.g., what were the circumstances at the time of signing, including oral statement by the employer; what was the nature of the employee’s job and what are his or her prospects of finding other employment given the non-compete; how meaningful and extensive are the business interests that the employer is seeking to protect; and how has the employer dealt with other former employees who signed non-compete agreements?). And fourth, have the local judges shown that they disfavor non-competes in other cases. Remember, the case law that is available for public research generally consists of opinions issued in cases that were appealed. Most cases are not appealed and most trial court decisions are not published. Sometimes, a local court will routinely find a basis for dismissing certain types of cases, such as non-competes that make it difficult or impossible for a former employee to find the type of work that he or she is most qualified to do. This would be known to local attorneys who practice before the court, but might not be known to someone who merely reads the published cases. That is why it is important to consult with an experienced attorney in the city or county where the the employer would be likely to bring a case. The attorney can analyze all the foregoing factors and express a practical opinion on the enforceability of the non-compete agreement. To answer your question is a very general way (which is not meant to be legal advice), under Michigan law doing what one is legally bound to do is not consideration for a new promise. Yerkovich v. AAA, 461 Mich. 732, 740-741 (Mich. 2000). Applying this rule to a non-competition case, a Michigan appellate court has noted that an agreement signed three weeks after the employee began her employment would not satisfy the requirement that consideration be given. Virchow Krause & Co v. Schmidt, 2006 Mich. App. LEXIS 2052, 5-8 (Mich. Ct. App. June 27, 2006) This seems helpful in the context described in your comment but, again, there are many other issues that need to be considered before a conclusion can be reached.
Question–can an employer in New York have an existing employee sign a non compete agreement? An agreement was never signed upon commencement of employment.
New York courts have held that if an employee is employed “at will”, as most are except those employees who have contracts with a fixed term, then continuing employment is adequate consideration given by the employer for a non-compete agreement from the employee. The rationale is that an employer can terminate an employee whenever it chooses to do so, assuming the termination does not violate laws protecting certain protected classes. Therefore, allowing an employee to remain employed is a form of “consideration” for which the employer can ask the employee to sign a non-compete agreement. The question, then, is whether the non-compete provision is reasonable in terms of geographic scope and duration following termination. This is a question for an experienced New York attorney.
“Non-compete Agreements | The Corporation Secretary’s Blog” was in fact a splendid blog post, cannot wait to read through far more of your articles. Time to squander a lot of time online hehe. Thanks ,Shad
My husband sighned a no compete contract when he was employed. He worked there for 15 years and is one of the best salesman on the market. His boss just recently out of nowhere wanted to cut his salary $500. Is that legal in the state of New York or is that one of the exceptions to New York State. His worth and qualifications are worth more than his base salary after cuting his income $500. I don’t find that reasonable at all.
As we have mentioned in our responses to other comments, we do not give legal advice at The Corporation Secretary. We can only provide some general guidance that may be helpful to you when you discuss your particular situation with an attorney in your location. Based on the information you provided, the answer may depend on the exact wording of the non-compete provision. The provision may be overly broad or invalid for some other reason. It may also be possible that the company your husband was working for when he signed the non-compete provision has since gone through a merger or other reorganization and the surviving company is a different legal entity. Some courts have said that a non-compete provision cannot be enforced by a company that is not the same as the company which entered into the non-compete provision. There is another argument your attorney might want to consider. Under New York law, the right to continue one’s employment is considered adequate “consideration” to the employee in exchange for the employee’s signature on the non-compete provision. However, if that is viewed as a fair exchange, what happens if the employer subequently reduces the employee’s compensation? Can’t the employee argue that he or she signed the non-compete agreement in exchange for the right to continue employment on the same terms? The argument would be that if the employer reduces the employee’s compensation after getting the employee’s signature, the employer is changing the bargain and therefore the employee is no longer bound by the agreement. We do not know if such an argument would be successful but your attorney may wish to consider it. Finally, there is the larger question of tactics. Do you file a motion with a court and ask for a declaratory judgment that the non-compete provision is invalid, or do you ignore the non-compete provision and wait to see what the former employer will do? The first alternative offers certainty but involves legal cost. The second alternative creates that risk that the individual will be sued by the former employer and/or any new or prospective employer will be threatened with a lawsuit. This is a very important decision that should be made after consulting an experienced attorney.
I seldom leave remarks, but i did a few searching and wound up here Non-compete Agreements
| The Corporation Secretary’s Blog. And I actually do have a couple of questions for you if you usually do not mind. Is it just me or does it look like some of these comments appear as if they are written by brain dead people? 😛 And, if you are posting on additional online sites, I’d like to follow anything new
you have to post. Could you make a list of all of your public
pages like your Facebook page, twitter feed, or linkedin profile?
The Corporation Secretary does not post on Facebook, Twitter, etc. because we decided, perhaps wrongly, that our target market, which consists of entrepreneurs and small to medium sized privately held businesses, do not search social media for information. Individuals are more likely to look for posts on Facebook and similar sites. Interestingly, we have had more comments on the post about non-compete agreements than we have received for all other posts combined. This probably reflects the fact that the information about non-compete agreements is of primary interest to individuals, not businesses, and employees or former employees can be very directly affected by the wording of the non-compete that they signed. Non-compete agreements are an interesting phenomenon because (i) statutes and court decisions vary greatly across the several states, (ii) it is sometimes difficult to tell how a court will react to the facts of a particular case because previously decided cases usually have different facts, (iii) employers often over-reach, using the non-compete are a tool to retain employees, not as a means of protecting their legitimate business interests, and (iv) employees who plan to leave a company, or employers who are looking at a candidate who is subject to a non-compete agreement, are often intimidated by the risk and cost of legal proceedings brought by the former employer. Hence, the legal analysis for a specific set of circumstances is not always clear, while the practical issues can be significant.
Hi, I had a question on non-compete. I am a non-immigrant worker and was employed in Michigan. My previous employer had me sign a non-compete agreement, when he handed over the non-compete he said that it is required for visa renewal because it has the latest salary reflected in that. I had to sign it because my visa was due to expire and I needed to renew it. He did not provide me any additional compensation or anything. I signed this in October 2012 and my actual salary increment happened in July 2012, he said he wanted the latest salary to be reflected in offer letter. Now I left the job in April’13 and he is threatening to file a law suit. Can I use the way the agreement was signed to my defense? how likely is it to stand in court. Thanks in advance for you reply.
As we have mentioned in response to other comments, we do not practice law at The Corporation Secretary. And even if we did, we would not give legal advice on limited facts. However, we can answer one part of your inquiry in a very general way. That is, we can say that Michigan currently has a senate bill pending, senate bill 786, which would provide a fairly significant change in the state’s non-compete law. Employees are often provided a non-compete agreement after they begin employment and they are reluctant to refuse to sign for the obvious reason that they do not want to be terminated or be put in disfavor because of their refusal. The situation is different before the employment commences because then the applicant can weigh the non-compete agreement in the balance of pros and cons before accepting the job. Litigation over non-compete agreements often involves the question of whether the non-compete agreement is invalid for lack of consideration. In the past, several courts in Michigan have taken the position that continuing employment is adequate consideration for a non-compete agreement if the agreement is signed after the employment has commenced. The Michigan senate bill, if passed into law, would make any non-compete agreement invalid unless it was signed before the employment commenced. However, the senate bill, if it becomes law, will only apply to non-compete agreements that are entered into after the bill is enacted into law. Still, if it does because law, judges may be influenced by the new law when they consider pre-enactment non-compete agreements. That is the general overview, which does really answer your question. You should consult with Michigan counsel, who will go over all the facts with you. Sometimes the terms of the non-compete agreement or the words used in it will render the agreement unenforceable. It’s all about the facts.