Once rare, non-compete agreements are now everywhere. For the companies that use them, they’re a great way to ensure employee loyalty and to protect against theft of trade secrets. For the employees who are subject to them, they can be a horrible restriction on the ability to freely pursue one’s trade.
So if you you’ve signed one of these agreements, or, if your employer is trying to get you to sign one now, what do you do?
- Don’t Sign Them in the First Place
As Sun-Tzu wrote in The Art of War nearly 2500 years, “The greatest victory is that which requires no battle.”
The best way to beat a non-compete is to never sign them in the first place. As an employee, your negotiating leverage drops like a 20-story roller-coaster the minute you sign a non-compete. Not only is your labor tied up with your current employer while you’re working there, depending on the exact language of the non-compete, it might be tied up for a good while after you leave as well.
As an employee who already has a job, you have no obligation to sign a non-compete. In this situation, if your employer wants you to sign a non-compete, you should ask for something in return: a lump-sum cash payment, a salary increase, stock options, more vacation, whatever. But if your current employer wants you to sign one, you should first press the pause button. Then, make a calculated assessment of whether the reward you’re getting is worth the added risk you’re taking.
If you’re a prospective employee, chances are you have unique and valuable skills that your prospective employer values. Depending on your value, you may be able to avoid a non-compete entirely. Or, if that’s not possible, you could…
- Negotiate Hard before You Sign
The majority of successful businesses hire lawyers to draft non-competes. But I’d estimate that 99% of new hires never bother to hire a lawyer when they’re negotiating one. And the vast majority never bother to negotiate them at all, with or without professional advice. One after another, they sign on the dotted line without questions or concerns. This is true, even though some of the restrictions have potential to limit an employee’s future income by tens if not hundreds of thousands of dollars.
This is crazy, lemming-like behavior!
Non-competes are not mandatory—they’re an optional contractual agreement between you and your employer, and most states strongly disfavor them. If you don’t agree with it, or you don’t agree with the way it’s written, you can negotiate a different agreement. Many employers would negotiate with employees, if their employees ever bothered to ask. Maybe your employer doesn’t care if you moonlight. Perhaps you have a side project you want to specifically exempt that your employer doesn’t care about. Perhaps there’s a line of work that’s indirectly competitive that you and your employer can agree that you can work on during or after your employment. Most non-competes start out broad, leaving plenty of wiggle room for potential negotiation.
Either way, one thing is certain: You’ll never know if you never ask.
- Find the Devil in the Details
As a lawyer who’s been around for a few years and worked with more companies and entrepreneurs than I can count, I’ve read literally hundreds of non-compete agreements. By now, I would have thought that I would have seen them all.
Nope. Just about every law firm has their own way of doing things. Not only that, but in this country, there are 50 states with 50 different sets of laws. Lawyers wouldn’t be doing their jobs if they didn’t customize these non-competes to each state.
The only way to know exactly how the non-compete will affect you, and how you might be able to negotiate better terms, tailored to you, is to get into the details.
- Analyze the Who, the What, the When, and the Where
In Colorado, non-competition agreements are presumptively unenforceable, absent a few narrow exceptions. Some lawyers have expertise with Colorado non-competition law and some lawyers have no clue. Some companies bring in local counsel that know what language a judge will enforce in Colorado and some hire a New York law firm that never bothers to try. I’ve seen non-competes that are as close as possible to airtight, and I have seen non-competes that are clearly not enforceable.
To know whether your non-compete is enforceable, first you need to analyze the role of the person who is subject to the non-compete. Some personnel, such as executives and management, can be subject to non-competes in Colorado. Most others cannot.
Second, you need to assess what exactly is being restricted under the non-compete. Is it narrowly tailored to the specific industry of the employer or is it a sweeping attempt to prevent someone from earning a living?
Third, consider whether the non-competition agreement is imposed in accordance with the sale of a business. Someone buying a business is usually given broader leeway to impose a non-compete than a normal employer.
Then, you need to assess the time and geographic restrictions of the non-competition agreement.
Ultimately, there is case law that gives us guidance on whether a restriction is reasonable or overreaching. The broader the agreement, the more likely it’s unenforceable. The more narrowly tailored to the location and key needs of your employer, the more likely it will stick.
- Get Creative; Get Strategic
Since non-competes, like snowflakes and small children, are almost always unique and special in their own way, it’s impossible to devise a one-size-fits-all strategy for avoiding or limiting the reach of a non-compete. The only way to do that is to understand the nuances of your non-compete and then come up with a unique strategy to hit it head on.
Returning to Sun-Tzu, “He will win who knows when to fight and when not to fight… He will win who knows how to handle both superior and inferior forces.” It’s bad strategy to advise the same thing to a client working with an airtight non-compete as opposed to one drafted by a clueless and sloppy lawyer. Rushing headlong into battle when your opponent is stronger than you will end badly. Avoiding a potential conflict when you’re in a position of clear strength is equally foolish.
The only way to choose the right strategy is to correctly assess whether you are in a position of strength or weakness, and then to devise a strategy to act accordingly.