12/01/2005

What Every Employee Should Know About Non-Compete, Non-Solicitation Agreements

Non-Compete Assessment For Employees: (Flat Fee Pricing):  If you are an employee who has signed, or is being asked to sign, a non-compete agreement, our non-compete and trade secret attorneys can help you understand your legal rights on important issues such as: 

  • Whether the non-compete agreement is likely enforceable.
  • Your options and our recommendations regarding risks, strategies and options.  

As importantly, we can provide you the guidance and advice you need within a budget that works for you.  We have several flat fee options for a non-compete and trade secret assessment ranging in price from $400-$1,800 (depending on how much income is at stake) so that you can make an educated decision about your next steps. Too many employees end up penny wise and pound foolish, making decisions about their employment and non-compete issues without understanding the risks involved.  

Contact a non-compete attorney today for a no-risk consultation by calling 866.936.7447 (toll free) or sending us an email describing situation.

Our attorneys have included some resources below for your review:

MarkClark_small Non-Compete Attorney Mark Clark Explains "What is a Non-Compete Agreement?" A non-compete and trade secret agreement is a contract signed by an employee where he or she agrees that they will not engage in certain employment within a certain geographic area for a certain period of time after they quit or are fired. Likewise, a non-solicitation agreements preclude a terminated employee from contacting the employer’s customers or remaining employees after leaving employment.

These restrictive agreements have become more prevalent in Michigan, especially in the technology sector where companies believe they have legitimate business interests that need to be protected.

Non-compete and non-solicitation agreements created a number of very difficult issues for the employees. And it is not just upper level workers who are often muscled into signing such contracts. It should not surprise anyone that companies have tremendous leverage to force business owners, upper level executives and lower level workers to sign these restrictive contracts.

Many employers require that the employee sign such an agreement in order to obtain employment, or after they are hired, in order to keep their job. Unfortunately, most employees believe that they have little or no leverage and sign these contract with little thought, review or negotiation. In far too many instances, employees are willing to do anything to secure a good job and naively assume that they will work there forever. They are wrongly informed that such contracts are unenforceable, or assume the non-compete won’t ever affect them.

Much of the mythology and confusions surrounding non-compete issues today, is because Michigan’s view of non-competes has changed over the last two decades. Michigan courts used to view non-competes as anti-competitive and, thus, unenforceable in Michigan. This all changed in 1987 when Michigan passed Section 4(a) of the Anti-Trust Reform Act. It is now the public policy of Michigan to enforce reasonable non-competition provisions in employment contracts.

So, what do you do if presented with a non-compete or non-solicitation contract by your boss or investor group? Often times, the non-compete contracts pushed in front of the employees are extremely broad and effectively preclude employees from working within the entire market altogether if their employment should end for any reason. Other non-competes might allow the employee to work in their chosen field of expertise, but only if they are willing to move to a different state, beyond the competitive territory of the employer.

Here is my top 10 list of employee tips if you find yourself staring down the barrel of a non-compete or non-solicitation agreement:

1. If you are considering signing a non-compete or non-solicitation agreement, be prepared to live with it as written. You may not be able to afford a court action to attack it. Even if you can fight the contract in court, Judges have a wide range of discretion and are unpredictable in how they will handle one of these contracts.

2. Do whatever possible to avoid signing a non-compete or non-solicitation contract. Make an initial stand that you won’t sign and see how flexible your employer may be. If they want you bad enough, they may be willing to live with a trade secret agreement instead.

3. If forced to sign a non-compete, negotiate the terms as narrowly as possible. Make sure that it is reasonable in its scope (duration, market description, geographic region).

4. Remember, the employer must have a legitimate business interest to protect. Force the employer to tell you exactly what they are attempting to protect. Typically this means protecting trade secrets, confidential information or an investment in an employee’s training and skill. Get it in writing. If you are never exposed to any such information or do not receive the training, you will be in a good position to have the non-compete declared invalid.

5. If forced to sign a non-compete, obtain extra compensation, a signing bonus or compensation for a period after your employment ends (severance package).

6. Try and avoid non-compete language, in favor of a non-solicitation clause, which precludes you from instigating contact with your employer’s customers if you should leave. Properly drafted, this will still allow you to go work for a competitor and will also allow customers who contact you to be serviced by you moving forward. It is much easier for a new employer to insulate you from contact with certain customers, than to find a position for you which does not compete against your former employer.

7. If you are forced to sign a non-solicitation clause, make sure to distinguish between customers which you bring to the employer, and customer provided through your new employer. Only agree not to ‘solicit’ customers after you leave. Don’t agree not to service them if they seek you out, or are already customers of your new employer.

8. Never agree to pay the employer’s attorneys fees if you should choose to challenge the non-compete. Oftentimes, employees are forced to court to request the Judge to limit the non-compete terms. You are going to have to pay for your own attorney’s fees; you don’t want to have to pay for the employer’s attorney as well.

9. Monitor employees who leave the company while you are still employed there and determine whether or not the company is forcing the non-compete terms against those employees. Companies may not “cherry pick” employees to enforce a non-compete. If you can show that the company failed to enforce the non-compete against others, your non-compete may become unenforceable.

10. Make sure you tell any prospective employer if you have signed a non-compete agreement. It doesn’t do any good to obtain a new job and have your new employer receive a threat letter 30 days into your new employment. It is better to be up front and allow your new employer to try and negotiate the non-compete language in a way that allows your employment.

Once an employee signs a non-compete agreement, options become more limited in seeking new employment. Yes, non-competes can be attacked in court. Yes, an employer has to have a legitimate business interest to protect in order to support the non-compete. Some non-compete language is too broad or do not protect legitimate business interests. Courts should strike down such non-competes or limit the terms to a more reasonable scope. However, employees are often not in a position to pay thousands of dollars to an attorney in order to attack a non-compete in court. Such a lawsuit is the last line of defense for an employee looking to challenge the non-compete.

Employees must be extremely careful in entering into either non-compete or non-solicitation agreements. Too often, employees convince themselves that they need the job so badly that they are willing to sign anything. When the job doesn’t work out, those same employees can find themselves without employment prospects moving forward. Sophisticated employers specifically ask new job applicants whether they’ve signed non-compete agreements, and many will avoid hiring such employees who have signed them. Many prospective employers know that they will be viewed as the ‘deep pockets’, and will be dragged into court if they hire someone who is allegedly violating a non-compete contract. These new employers do have liability if they benefited by the employee’s skills and customer contacts in violation of the non-compete.

In today’s economy, and especially the tech economy, no job is secure. Even if you are fortunate enough to have an employment agreement which mandates that the company keep you on staff for a number of years, there is no guarantee of permanent employment in Michigan. I always tell my clients, hope for the best, and plan for the worst. In other words, assume that your employment will not work out. As with many legal issues, a couple hundred dollars spent up front for attorney advice, can save the employee thousands of dollars down the line, and put that employee in a position to obtain gainful employment if they lose their job. When it comes to non-compete and non-solicitation agreements, an ounce of prevention is really better than a pound of cure.

COMMENTS

If you are an employee who signed a noncompete agreement or confidentiality agreement, you need to understand that these contracts are often enforceable to the extent they are reasonable. If you are changing jobs or looking at changing employment, you need to fully understand what limitations you may be operating under under your noncompete contract. You certainly don't want to quit without knowing whether or not you might get sued for violation of the non-compete and whether or not you have a real risk of losing that lawsuit.

What if the business closes or stops providing the service i was providing? Does that nullify the non compete?

I started a job 5 years ago without any contracts. Last year we were told to sign a non compete or we would be terminated. There was no compensation offered. I would like to change jobs but the contract forces me out of the business I do.

We used to own a manufacturing company and sold out to a foreign company three years ago. Our business was global, manufacturing and selling automated truck washes. At the closing all sellers had to sign very tight non-compete agreements. New owners and relations to them did not work well and all former owners have now left the company. I - as the key sales person for the company - was offered a part-time sales consulting job from our Australian dealer at very lucrative terms selling our company's products to their mining industry. Due to the bad relationship with the new owners (with most company employees) they are trying to enforce the non-compete contract to keep me from working for their own dealer selling what I always used to sell - their own stuff.
I have found no previous cases where non-compete agreements have been tried to be enforced on these grounds.
The matter is getting quite hot as the dealer in Australia had to turn down the offer sent to me previously as they were told that I cannot be hired due to my non-compete agreement. We are talking here about hundreds of thousands of dollars in compensation that I will not see.
The new owners recognized that I would not be competing against them as I would be promoting and selling their equipment but that the language in my contract prevented me working in this industry.

How can they keep me from doing my job, the one I was trained for? I signed the no compete contract but really had no choice if I wanted the job.

I am an automotive recruiter. I just had a situation where a poorly written, non-enforceable non-compete prevented the hiring of one of my candidates. The potential legal costs could approach 100k. This caused the hiring company to rescind it's offer. My advice, either don't sign them or negotiate something reasonable that you're willing to live with.

Christine, why don't you try to provide better service to your customers than your employees can when they leave you? Stop making excuses about how it affects your business badly and face the facts: non-competes are cheating in the face of being unable to compete in what essentially should be a free market.

I am looking for a non-compete contract just because I was the nice guy and twice now I have had 2 employees leave me and take children from my daycare. This time it could cost me over a thousand dollars a month loss. I am sick of treating my staff the way I would want to be treated then getting stabbed in the back and hearing they have been talking to my customers behind my back and making arrangements to leave me and assume child care from one of my staff instead. I need to do something because just when I get my clientel built up one of my own takes it from me.

NON COMPETE JOBS ARE SCARE TACTICS BY SUCH EMPLOYERS THAT WANT ONLY CONTROL OVER EVRYONES LIVELY HOOD. AGAIN NON COMPETITIVE LAWS OR SUCH AGREEMENTS ARE USELESS. I SAY SO SUE ME IF YOU WANT .IT COST THEM MORE IN MONEY AND TIME IN COURT ,THEN ALL YOU HAVE TO DO IS FILE BANKRUPTCY AND NO ONE WINS. DONE THIS THREE TIMES AND WILL DO IT AGIN AND AGIN, AGIN AND DRAIN THE COURT SYSTEM IN TIME AND MONEY. OR BETTER YET AS IVE DONE BEFORE DONT LIST THE COMPNAY ON YOUR RESUME OR APPLICATION INWHICH ALSO HAS BEEN DONE. MICHIGAN LAW NEEDS TO STAY IN MICHIGAN, AS DOES OTHER STATES LAW TO EMPLOYEMENT FOR A SPECIFIC JOB. AS TO TRADE SECRETS i CAN SEE THAT IF LETS SAY YOU INVENT SOMETHING FFOR THE COMPANY AND THEY BUY IT oK THATS REASONABLE.BUT AS TO AGIN AS STATED A SECURITY COMPANIES TRADE SECRETS NO!!

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