Non-compete Agreements Can Be Tricky to Navigate on the High Seas of Corporate Piracy

By Julie Swaner

If you are a mid- to senior-level worker in a knowledge industry, employers are worried that they may lose you. With an increasingly mobile work force scouting for opportunities to advance their careers, many employers view this as risky business and are fearful of losing key employees to their competition. The employers’ response to this hyper-competitive job market and hyper-competitive industries is to create non-compete agreements, which favor their position over yours. These agreements often prevent present and former employees from working with competitors. The terms also limit the chance that private employer information or trade secrets might be given to another company, and the agreements act as a deterrent to potential corporate raiding. (Think pirates on the high seas of business.) This possibility of corporate raiding has caused the use of non-compete agreements to explode in the last decade.
I recently went to an all day-workshop sponsored by the Holland and Hart law firm for the Salt Lake Society of Human Resource Management (SHRM) and attended a break-out session on this topic of non-compete agreements. Through the years, I have met a number of individuals who were constrained by their non-compete clauses for at least a year. I was very curious about this topic, and of course my approach was that of the worker and not the employer. Non-compete agreements represent a complicated and complex topic, and attorneys on each side parry for big bucks to uphold or destroy them. Here are the key points that I learned:

1. It is important that you know the law in the state where you work. Every state has slightly different rules and regulations about non-compete clauses.

2. Under Utah law, to ensure that your non-compete agreement will be valid, your non-compete agreements must be: (1) supported by consideration; (2) negotiated in good faith; (3) necessary to protect the goodwill of the business; and (4) reasonable in their restrictions regarding time and geographic scope.

3. An employer must keep in mind the employee’s skills, abilities, and future marketability. The courts are concerned with something called “common calling,” which is your ability to ply your profession in various occupations such as a doctor, attorney, or professor. The skills you have belong to you, not your employer. As such, the courts don’t want a long time period that will limit your ability to find work, and they generally prefer terms of two years or less. A non-compete agreement related to “common calling” can be difficult to enforce if it unnecessarily restricts an employee’s ability to earn a living.

4. Geographic scope is important, because some employers have wanted nationwide limits on a current or former employee’s ability to work for a competitor. Often the courts will throw this out, but geographic limits may be enforceable within a certain part of a city or town. Often an employee must refrain from contacting competitors within the same geographic locale.

5. The clause concerning goodwill and trade secrets is important for protecting a legitimate business concern. Often an employer must show that not allowing this limitation would cause potential future damage.

Many non-compete forms are thrown out by courts when they are overly broad and lack specificity. These non-compete agreements must be tailored to the interests of the employer, and a one-size-fits-all approach will not work. They are usually enforceable as long as they are no broader than necessary to protect an employer’s legitimate business uses. Normally, employers have employees sign non-compete clauses when they are hired. When an employer asks a worker to sign a non-compete agreement several years after he or she has been in the job, this is less enforceable and is seen as an after-the-fact stance. In order to show that a non-compete agreement was supported by consideration, an employee must receive something of value from the employer in exchange for signing the agreement. The courts often want someone to be compensated for a period of time if the non-compete is enforceable. The term used is “bird dogging,” which means that person is paid to do nothing.
Be careful about signing non-compete agreements. Or you could look for work in California, North Dakota, Montana, and Oklahoma, because those states do not allow non-compete clauses. No, I am not an attorney and don’t play one on television. If you are in need of career advice rather than legal advice, please call me.