My thoughts on Non-Competes

Code Civil des Français,
1804, original edition

Hello all, since this is more along the lines of employment advice, I am posting this in my tech blog. It is a post that I think is of a serious nature, about a situation that a friend of mine experienced, but I will not be putting my friends name in the post to protect his anonymity. About a month ago a friend of mine came to me with comments about a non-compete they had signed. The non-compete was simply a general statement and they were going to have to leave the company because of issues with the management.

I explained to them about non-compete agreements in general. We spoke about related laws, statutes and relevant NH and other Supreme court cases. The non-compete in question was so broad that the lawyer was either incompetent or they had done the document this way so that they could keep my friend tied up in court for years. I noticed my friend made some mistakes or assumptions that we all have made in the past at one time or another.

There was no compensation tied to the non-compete and thus upon a termination the employer would have retained the restrictive parts of the contract without the employee maintaining any of the benefit. If termination was for “no cause” the contract should have been dismissed and my friend did not have this clause incorporated. Without this kind of obvious protection, a corporation could stop any kind of competitor by hiring away their employees, having them sign a non-compete and then firing them, thus eliminating their competition. While on its face this is ridiculous and would be likely considered to be unconscionable by a court interpreting the non-compete, it is something to be aware of when entering a contract.

So in the end there was a sobering thought, the company had a non-compete that would be (IMHO) unenforceable and there should be no worries, alas the world is not perfect. The company who wrote the poor non-compete, with all of its vagaries, had made overtures that they would fiercely defend the contract and let the courts decide it as they felt they had rights. I was saddened when my friend called and told me the news. 

The company had deep pockets and planned to effectively keep him from working, even though they knew that almost every case like this would be ruled on in favor of the employee. So why did they plan to do this? Because they had sales over 30 million, the money was not an issue and they had turned it into weird personal thing. The cost would be prohibitive to my friend. Alas, in the end, it was not required, my friend left the company and there were no court challenges to the best of my knowledge, however it did make me think of writing some employment tips.

First, do not believe that lawyers do not need ethics and do not assume they are ethical. If you run into lawyers that do something like this you need to be willing and able to go after them to the appropriate state bar associations, etc. You may find you are not the first one to complain.

Second, do not sign a non-compete, if you do make sure that it is very clear, it is tied to compensation and that it expires when the contract expires or on termination or layoff for no cause.

Next, have a non-defamation tied to it.

From Wikipedia: Defamation—also called calumny, vilification, traducement, slander (for transitory statements), and libel (for written, broadcast, or otherwise published words)—is the communication of a statement that makes a claim, expressly stated or implied to be factual, that may give an individual, business, product, group, government, or nation a negative image. It is usually a requirement that this claim be false and that the publication is communicated to someone other than the person defamed (the claimant)

If the company does make defamatory claims, that impact your future employment, make sure that they will need to pay for court costs if they force this claim. You may find they are a bit less likely to defame you if they are on the wrong side of a hundred thousand dollar suit.

Finally, it will take money. If you are going to sign a non-compete put 20,000 in the bank for a suit on day one, a good firm will require ten thousand dollars down on day one and another ten will be gone within 45 days if they are a good firm and you fight false claims aggressively. If you cannot put the money in the bank you need to reconsider signing the agreement.

In closing, remember you may need to sign a non-compete, just do not assume a lawyer is perfect. Have it reviewed by your own lawyer, all reputable companies will allow you to have a lawyer review the non-compete. We all may do them from time to time; my last non-compete (which was not much of a document in my opinion) ends in a couple weeks, it did not prevent me from doing anything I wanted to do, while the company can request to extend the non-compete for compensation they are not required to do so, as the founder of a company you may need to do something like this as I did and like most things, non-competes also end – feel free to do what is right for you but look into the law! Remember competition is a good thing and in most industries we know all the players, so we can count on transparencies and openness.

Remember:

1. Feel Free to file complaints against law firms or lawyers, happens all the time
2. Make sure you are compensated if fired without cause or have the contract terminate
3. Make sure the agreement includes non-defamation! Companies do not want to be sued so even the threat of a suit will make them walk away from you and the defamation
4. Make sure that compensation for lawyers’ fees is part of any agreement
5. Make sure you have money in the bank for the suit upfront
6. Be smart and protect your rights under the law!
7. I am not a lawyer, if you find you need advice after reading this call a lawyer :)

Cheers,

Rob