There’s been a lot in the news about Non-Compete Agreements being outlawed. I got stuck with one when I took a job about 10 years ago. When I quit and got another job, they claimed I joined a competitor and threatened to sue me. (I didn’t consider it a competitor.) Things got nasty but they finally backed off after my lawyer sent them a nasty-gram. I’m interviewing again, and the matter of an NCA has come up again. Is there a way to escape these things until the law changes?
Many years ago I worked for a time at a small, nimble, regional technology company. We were successful because our managers and employees were very smart, hardworking and highly competitive. There were no NCAs. Until a bigger, national company bought us out.
Soon, all managers received an e-mail and an NCA. We were instructed to sign and return it to HR. Every manager signed it. Except me. I ignored it completely. HR called me again and again to remind me. All they got was, “Okay, thanks for your call.” They finally gave up.
Sitting around shooting the breeze with other managers, it came out that I didn’t sign. They were all stunned: “You’re gonna get fired!”
“They won’t fire me. They want me to sign an NCA to stop me from joining a competitor and taking business with me. Since I have not signed, they’d be foolish to fire me because then I’d join a competitor and compete with them —and they won’t be able to do a thing to stop me because I never signed.”
Nobody fired me. And not long after, I joined a competitor.
You have the power right now to just say no, and I don’t think it’ll hurt your chances of getting hired.
What is a Non-Compete Agreement?
A Non-Compete Agreement is a contract that in essence interferes with a person’s right to work where they want and for whomever they want. Employers used to require NCAs primarily for new executive hires, but today even fast-food workers are sometimes required to sign them.
Except in one case, which we’ll discuss because it’s the only reason to sign an NCA, these agreements on one-sided, protecting only the interests of the employer. NCAs have been controversial for decades. A few states have outlawed them. While NCAs have proved difficult to enforce, few departing employees can afford the legal costs of fighting to protect their rights.
NCAs can’t hurt you if you don’t sign
Now, the Federal Trade Commission has proposed a rule that would forever ban NCAs in employment for an estimated 160 million working Americans. But it’s not law yet.
Whether the law is on their side or not, many employers will try their luck getting you to forfeit your right to work for a competitor — simply because it costs them nothing to try. And they know most job applicants are likely to give in and sign an NCA. They rely on the ages-old fear job hunters have of being rejected. Many job hunters quickly rationalize that “I can’t worry about this — I need the job” or “they’d never come after me.” In either case, intimidation works wonders.
Certainly, even if they have an NCA, some employers will not come after you if you go to work for a competitor. And some will fold their cards if you firmly but politely decline to sign an NCA. They will hire you anyway.
But employers that are serious about NCAs will throw their legal might at you and you probably can’t afford to fight that battle, whether you can win it or not. Few people are willing, or able, to spend money on lawyers.
So why risk it? If you don’t sign an NCA, they can’t sue you for violating it.
Of course, if you decline to sign, you might not get hired. Still, my advice is to decline, because you’ve got a lot in your favor, especially right now.
- Unemployment is way down (which means it’s harder to fill jobs).
- The number of new jobs being created is way up (which means it’s harder to fill jobs and job seekers are likely to have more options).
- Employers are paying higher salaries because… it’s harder to find workers and to fill jobs.
You’re in a good negotiating position because an employer likely needs to hire you today more than it can afford to worry about losing you to a competitor tomorrow. So negotiate. (See also: Salary Negotiation: How much to ask for.)
There’s only one reason to sign an NCA
If you feel you really must comply and sign the thing, there are two ways to protect yourself. First, consult an employment attorney that works only for executives and employees. Spend the money to get help negotiating.
Second, consider what an NCA really does. It protects the financial interests of the employer. Not yours.
The only reason to sign a Non-Compete Agreement is if the company pays you to sign it.
Two can play at this game. If a job offer is made contingent on you signing an NCA, ask for a severance agreement. Consider this approach.
How to Say It
“I understand that you need to protect your company’s financial interests. And I need to protect mine. If you’re concerned that you’ll lose money if I compete with you, then we’ve established this NCA is worth money. Now the question is, how much? If you want to restrict my ability to make money so you can avoid competition, you need to compensate me. A one-year NCA that prohibits me from working for your competitors is worth at least my salary for a year, plus whatever raise I’m likely to get in today’s market. So I’ll sign if you give me a severance package to compensate for locking me out of the industry.”
By the way — employers routinely give this severance deal in conjunction with an NCA to executives they hire. If they’re going to apply this to managers and other employees, employers need to pay for that which is worth money — your NCA.
If they won’t?
How to Say It
The next time you’re faced with a job offer that requires an NCA, just say, ”No thanks, but I’ll take the job without it.” If they balk: “In that case I’ll take an offer elsewhere and be your competitor.”
If you’re good enough to hire, you’ll also be a formidable competitor.
Still nervous about refusing to sign an NCA? Please consider again the three truths I listed above about the job market today. I believe the job seeker has the distinct negotiating advantage. But as always, don’t just do it because I said to. Consider what I’ve said and use your best judgment to do what’s right for you.
Did you sign a Non-Compete Agreement as a condition of getting a job? Why? Has an employer ever come after you for violating an NCA? Do you believe job seekers today have the negotiating edge?
There are only a few reasons to sign a Non-Compete Agreement or a Non-Disclosure Agreement for that matter:
1) Mind-boggling amounts of cash are on the table for you to scoop into your briefcase and take to the bank.
2) Breathtaking residual or commission payments in perpetuity, with some form of bond or guarantee.
3) Both of the above.
Other than that, laugh and get up from the table.
@L.T.: Thanks for pointing out the extortion trick (#2). Employee has commission or other monies (other than wages/salary) due. Employer holds is hostage, demanding NCA before funds will be paid out. It’s worth consulting an attorney to find out whether those funds can be withheld legally.
Years ago NCA was requirement to sign for continued employment with the acquisition company… two refused and all was swept under the rug by HR. Subsequently we went after an employee who departed for competition and ended up totally backfired… we won the battle but lost the war. Clients ended up leaving us because they felt sorry for the employee who we sued.
@Paul: Unintended consequences sometimes pay off for someone!
Excellent point. Bad publicity from going after an employee could potentially cost more than just letting the employee go without prosecution.
Said bad publicity could also discourage applicants.
Whoops, I should have said “suing” instead of prosecution. Violating a non compete agreement would be a civil matter.
Being in tech, I don’t know if I buy the low unemployment rate as a reason to negotiate, though. Where are those jobs, dishwasher, cook? The recent big tech job layoffs aside, there still are a lot of tech talent out there compared to openings. Granted, a 3.4% overall number is better than say an 8% number, so the average tech openings are probably more.
The only thing the company I recently just got laid off from did was, if you left for a firm that was a competitor, they let you go immediately versus letting you ride out your notice. Now, since they just laid me off, if I went to work for a competitor, they couldn’t do anything about it.
Once upon a time I signed a non-compete, and I regretted it for years. I was naïve. Total stress and worry. I would never sign one again without extraordinary reasons.
My previous employer had executives sign an NCA as a condition to receiving the year-end long-term incentive stock grants. No signature… no stock grants.
@Doc: I think that comes under “They’re paying you to sign the NCA.” If that’s disclosed clearly up front, then caveat emptor.
@Nick, I love this advice. Get a severance package!
Do NOT sign under the assumption that “they’ll never come after me.” They just might. A very dear friend had the lovely experience of having a noncompete enforced, causing major disruption to her life. (BTW–this happened after the company fired HER, while weaseling out of thousands of dollars in earned commissions.)
Being publicly named and ridiculed by the editors of the local newspaper was just the icing on the cake.
@Cath: That’s what good employment (and slander) lawyers are good for. Sorry to hear that sad tale.
There is more than one reason to sign one of these, I agree that a severance package should be an option or if you are terminated the NCA is then null and void.
I worked for a company during the plandemic and we all had to sign an NCA/NDA due to the company having a patent on the formulation and assembly of the tests and testing equipment. I have also worked for several of the federal alphabet agencies and this is a requirement if you have security clearance.
As a fast food worked or general civilian employee, this ranks up there with credit checks and background checks. If the job is not related to national security or a specific technology then you should decline.
Remember, the police,fire,and military all have this in the hiring packet. LAPD did try a 5 year contract with the new hires, it was later ruled a violation but only because it had a no way out clause which prevented officers from transferring to ANY other department across the country for the 5 years. They lost that fight in court when a number of officers sued.
If you don’t want to be forced into signing then do the research on the company, ask the questions.
The only time I have ever heard of someone getting nailed for this dealt with one job I had with DHS and shipping security which dealt with “contraband”
The former employee went to another private company and talked about the procedures and the equipment used and what it did and what it looked for.
I think that guy is a fry cook at a fast food joint now.
Some organizations will bundle an NCA with an NDA. It’s rarely legit to do that. Often, if an appropriate NDA is used (Non-Disclosure Agreement), an NCA may not be necessary. Is the company trying to protect secrets, trade secrets, customer lists, how much flavoring it puts in a product? What’s covered should be clearly and narrowly defined. Competing may not really be a problem if secrets are protected by NDA. But employers will overdo it if they’re allowed.
I’m not very familiar with police, fire, military – thanks for raising that.
Noncompetes exist in medical employment contracts. They are very frequently used, and the employers definitely try to enforce is. They are unethical as far as I’m concerned. I have seen them enforced to the detriment of a community. Rural areas where the loss of a single physician can be significant. And there are no “trade secrets” in medicine, it would be considere unethical if a physician claimed a “secret cure” for a disease.
And yes, I have seen noncompetes in states where noncompetes in medical employment contracts are forbidden by statute. The employers must figure it costs them nothing, but it will cost you something if you try to fight an illegal clause.
When I worked as a contractor doing computer programming at telephone companies, it was very common for the contract house to hand me a non-compete agreement to sign. The “boiler-plate” contract usually said something like, “you may not go to work for the company where we assign you and any other company that we do business with.” This was in New Jersey where all the phone companies had major offices and the contract houses serviced all of them, so it pretty much meant that I couldn’t do business anywhere in the state. Also this was where the contract was only good for 6 months or a year, so they were pretty much locking me out of any other job except through their contract house. I understood that what they were really concerned about was that I would convert to full-time through the client phone company and they would lose their fees. So I simply redid the contract to specify that it only applied to the specific department of the specific company that they placed me with. Therefore I could freely work anywhere else even within the same client company. They never complained about my amendment to the contract. It was a win-win. Other times I did what Nick suggested and just pocket the agreement and see how hard they would push for my signature, once I was already on the payroll and generating revenue for them. When it was time to renew the contract, they often would forget that I never signed the agreement.
@RT: Thanks for that! Like I said, “La la la I CAN’T HEAR YOU!”
This brings up the issue of the employees’ total, over the years financial security, not just for the year but for his career. Near the end of my full-time employment career I asked my current and several potential recruiting companies to go over with me my own personal financial future with that employer. Where I would be each year on salary, bonuses, promotions, training, salary, benefits, stock, ETC. In each case they were shocked. No one had ever asked such questions before and eld their feet to the fire. They themselves had never their own careers in financial terms with said employers. To find out and obtain written commitment to thesed issues is ESSENTIAL for your career financial growth. If the company will not commit to you why should you commit years you will never recovger to them? Where will you be financially when your career ends and you retire?
In California, just sign it. Not worth arguing about since it’s not enforceable. Check the state’s laws you are asked to sign it.
Except as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.
Ca. Bus. and Prof’l. Code § 16600