Should You Sign a Noncompete, NDA, or Other Restrictive Covenant?

In a tight labor market and a competitive business environment overall, employers don’t want to lose top talent. Some go so far as to ask employees to sign noncompete agreements and try to limit the possibility that they could jump ship and land a job with a competitor. Other restrictive covenants can include nonsolicitation agreements, nondisclosure agreements (NDAs), and trade secret protection agreements.

Things get a bit trickier for employers here, though. The courts have often come down on the side of the employees, stating individuals have a right to seek employment. Therefore, to be enforceable, these agreements are usually only used for people in senior or key positions. The employer must also prove that an agreement is “reasonable”—which can be a challenge.

The most disputed form of these restrictive covenants are noncompete agreements, says Nathaniel J. Hill an attorney with JacksonWhite, P.C. “Can an employer fairly stop an employee from working for a competitor? Only if the restriction is to protect a legitimate employer interest. Courts look at the geographic limitation and the time limitation. These limits must be reasonable and are evaluated based on the actual facts of the employee’s employment.”

The higher up you climb in your career, or the more specialized your job is, the more likely you’ll be presented with restrictive covenants as part of the employment process. And these situations are becoming more common, even for individuals with less experience. Noncompete lawsuits are nearly twice as common today as they were 10 years ago.

When presented with these types of documents, what should you do? The answer is not an easy one and will vary based on the state you want to work in.

Don’t Just Sign on the Dotted Line

Michael Elkins is a civil litigation attorney with MLE Law, focusing on labor and employment law and business litigation. While popular wisdom may suggest that these types of agreements are not enforceable, Elkins points out that this isn’t necessarily true. “The fact is many states allow noncompetes,” he says.

Mark J. Oberstaedt, partner at Archer & Greiner and member of the firm’s Trade Secret Protection and Non-Compete Group, offers the same caution. “Too often in our experience, prospective employees assume these agreements are either definitely enforceable or definitely not enforceable, and they sign non-compete agreements based on that assumption,” he says. But, he adds: “The law is not clear in most cases. The enforceability of a non-compete agreement depends on many factors, such as where you live and work, the length of time involved, the geographic scope, and the legitimate interest the employer is trying to protect.”

The laws that affect an employer’s ability to enforce noncompete agreements—and the employees’ ability to get out of them—are complex and varied. It’s important to think carefully about the implications before signing these forms.

Certain employees may be in a position to negotiate the terms of these agreements—or, in some cases, refuse to sign them.

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There’s Room for Negotiation

“When presented with a noncompetition agreement, an employee should not immediately sign,” says Elkins. Instead, he recommends having the agreement reviewed by a labor and employment attorney. “The law on noncompete varies from state to state,” Elkins explains. For example, in California, such agreements are “virtually unenforceable.” In Colorado, they are “only enforceable in very limited, specific circumstances.” In Florida, they are enforceable if they are considered to be “reasonable as to geographic scope and time and are supported by ‘legitimate business interests’.” What constitutes legitimate business interests “is a hotly litigated issue in Florida.”

Steven I. Adler, a member of the Mandelbaum Barrett law firm, says employees today are fortunate to be in “a seller’s market with high demand for good talent, giving job candidates more leverage when negotiating the terms of their employment.” Generally, nondisclosure or confidentiality agreements don’t create much concern for employees because most don’t object to keeping that information private. After all, the employee’s professional reputation is at stake. If potential employers see an individual doesn’t behave in good faith, they’re less likely to want to work with that person.

Noncompete and nonsolicitation agreements are a different story, though.

Adler warns you should look at these agreements carefully. “If an employer won’t waive the requirements, the applicant should try to limit its term and scope so that the applicant can remain in the same field if they leave,” says Adler. “In addition, the applicant should try to restrict the noncompete so that it doesn’t apply if the applicant is terminated without cause by the employer or if the applicant resigns for good reason.”

What You Sign Can Be Binding

If you do sign an agreement, be prepared to live with its requirements.

“As a prospective employee, you should assume that if you sign the agreement and take the job, you could very well be restricted from competitive employment when you leave that job,” cautions Oberstaedt. “If you cannot accept that restriction, you should not sign the agreement.”

Again, seeking counsel from an attorney is a key best practice. An attorney is in an excellent position to weigh in on the legality and enforceability of the document—and offer assistance in negotiations.

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