If you are in the market for a new job or freelance gig, don’t be surprised if you’re asked to sign a non-compete agreement as a condition of employment. You may also be asked to sign a non-compete at the end of your employment as part of a severance package. Problem is, a non-compete could hamper your ability to earn a decent living down the road.
What exactly is a non-compete?
A non-compete agreement is a contract between you and your employer (or soon to be ex-employer). Typically, a non-compete prevents you from going to work for a competitor or starting a competing business for a specified period of time in a specified geographic area after your employment ends. A non-compete should define what a competitor is and also spell out how long, and in what geographical area, the non-compete applies.
While non-competes are advantageous to employers, they can restrict employees when it’s time to move on. The laws on non-compete contracts vary from state to state. In most states, a non-compete will be enforced only if it meets requirements intended to ensure that it is fair and reasonable. In general, in order to be enforceable, a non-compete must protect an employer’s legitimate business interest and also be limited in time, geographic scope, and the type of work that is being restricted.
What if you signed a non-compete?
If you’ve signed a non-compete, left your job and started a new one, your former employer can sue you to stop you from competing if it believes you have broken or “breached” the non-compete agreement. If this happens, it can be costly for you, your new employer, or both. Your old employer may file a lawsuit against you alone if you started working for a competitor or started your own competing business. Or, your former employer may file a lawsuit against you and your new employer, especially if you share trade secrets with your new employer. If you lose the lawsuit, you might have to pay your former employer for revenue it lost because of your breach, such as lost sales. You may also have to pay the former employer any profits you made by using its trade secrets.
These types of damages, however, may be difficult for your former employer to prove. Because of this, many non-compete contracts require you to pay liquidated damages: a set dollar amount, stated in the contract, which you agree to pay in the event you breach the agreement. The contract may also require you to pay your former employer’s attorneys’ fees and court costs.
Review & Negotation
In short, a non-compete can keep you from working under certain circumstances. A good practice is to have an attorney review a non-compete prior to signing it. Whether the employer is requiring you to sign a non-compete at the start of your employment or if you’ve been asked to sign a non-compete as part of a severance package at the end of your employment, it is necessary to understand the restrictions set forth in the non-compete and the effect those restrictions may have on your future employment.