I probably get three or four phone calls a month from individuals who are unhappy at work, are thinking about making a change in their employment but wonder if that non-compete agreement they signed a year ago is really enforceable. The conversation generally goes like this:
Potential Client [PC]: “Everyone I’ve talked to says these things [non-compete agreements] aren’t enforceable.”
Me: “Well, who have you spoken with exactly?”
Me: “Have you spoken to another lawyer about whether your non-compete is enforceable?”
PC: “No. But how can it be enforceable? I have a right to work.”
Me: “I wish it were that simple.”
Indeed, as one recent article in the Minneapolis Star Tribune accurately stated, the increasing mobility of the workforce has resulted in an increase in the number and types of employees subject to non-compete agreements. As a general matter, non-compete agreement agreements are enforceable if its terms are reasonable and the employee is getting something a sufficient value in return.
When evaluating whether the terms of the non-compete agreement are reasonable, factors to consider include (1) what the employee did for the employer, (2) the type of work the employee will be prohibited from doing for a new employer, (3) the length of the time the employee is restricted from competing with the employer, and (4) the geographic scope of the restriction (i.e., whether you are prohibited from working in a particular town, state, country or the entire world). Generally, courts will uphold those agreements that are reasonable under the circumstances. The court also has the ability to unilaterally modify the restrictions to make them “reasonable” under the circumstances, which is often referred to as the “blue pencil doctrine.”
A court also will look to see whether the employee received adequate consideration in exchange for signing the non-compete agreement. In other words, courts want to make sure the employee received something of sufficient value in exchange for giving up some of their post-employment rights. Typically, if a non-compete is signed at the beginning of the employment, the court will hold that the employment itself is of sufficient value to support the enforceability of the non-compete agreement. However, if the non-compete is being presented to a current employee after employment has began, the employer typically needs to offer more than the promise of continued employment. Courts typically find that a bonus, stock options, pay raise, promotion or other type of tangible benefit will, in most instances, be sufficient. In the end, the court will look at whether the consideration given was reasonable given the terms of the non-compete and all other circumstances.
Most people sign a non-compete without appreciating the implications to their future employment. A non-compete can be especially oppressive if you have specialized experience in a particular industry or have a particular expertise that you will not be able to utilize for a period of time following separation from your employer. This may result in a significant limitation in the types of positions you may be eligible to apply or may result in a decrease in your expected pay because you won’t be able to use those skills that make you the most valuable in the job market.
My suggestion is that you spend time negotiating the scope of the non-compete with the potential employer to make sure it protects both the employer’s legitimate interests while it allows you to be as marketable to future employers as possible.