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Does a non compete agreement fence you in — or out?

As your business matures, you will find yourself in all sorts of new territory.

For many of us, employment contracts such as non compete agreements are just that sort of territory: new. And possibly boring.

This post answers the question, what is a non compete agreement and why should you care?

I’ll make the answers quick because a) it’s Friday b) the sun is shining and c) no one cares about contracts until they start getting into trouble.

Let’s take a minute or two to see if we can keep you out of trouble.

Important Points to Consider

The first important point to consider about contracts is that they are important.

You know how good fences make good neighbors?

Contracts help you have good relationships with your workmates, employers, and subcontractors.

Among you, me, and my clients, I like to call contracts “agreements.” The word “contract” has a contracted, uncomfortable feeling.

Agreements are all about agreeing. Yes?

So let’s agree: As a freelancer, you’ll create sensible, attorney-approved agreements with your clients and sleep better at night as a result.

Right now, I’m going to discuss a specific kind of agreement, called a non compete agreement.

What is a non compete agreement?

A non compete agreement is a document you sign, typically with an employer, but also with someone who hires you as a contractor, that limits your ability to work for other employers in the same industry should your work or contract for any reason terminate.

Example: You are a young attorney, you sign a non compete agreement, your boss lets you go. You have agreed you will not seek employment in the field of law.

Ugh. Where does that leave you? Selling newspapers on the corner, that’s where.

Take home: Non compete agreements protect employers, not employees.

Therefore, your first choice should always be to not sign one. It’s not for you; it was not designed, created, or executed to help employees and contractors.

It’s that simple.

Question: What if you really want or need the job?

In that case, negotiate that the agreement be for the shortest duration possible and that you be compensated during the time of the agreement. Oh, and don’t forget to throw in a clause whereby, if the situation escalates to the courtroom that the employer is responsible for legal fees. That can get costly — and quick!

Example: A 6 month agreement in which you are paid your salary and benefits. Now, instead of working as a lawyer for those 6 months, you sensibly head for Italy, the south of France, or a tropical island, and work on your novel before the money runs out (let’s assume this situation didn’t end up with lawyers and/or a trial).

Here are a few more things you should know:

  • Non compete agreements are not enforceable in every state. Maybe. But they could be, so don’t count on it and sign one anyway.
  • In some states and in some circumstances, non compete agreements imply legal employment, and thus employers should be providing you with all of the perquisites that go along with employment — including paying into social security.
  • A non compete agreement is different from a nondisclosure agreement, which only limits your ability to leverage company information to help competitors — but you wouldn’t do that, anyway, now would you?
  • The larger the contract, the more important it is for you to make sure you know what you are signing and all of its implications because larger contracts mean more of your income is at stake.

Take home: Do not sign an agreement like this without having an attorney review it.

I don’t want to sound like the mafia, but here it is again:

Do not sign a non compete agreement without having an attorney look at it.


Your Turn

Any good non compete agreement stories? I read some doozies on the web, like the woman who was barred from making jeans for ten, count ‘em, ten long years.

photo credit: Andy Zeigert

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