If there is one document in the hiring process I hate to hear about, it is the non-compete agreement. If there is any single document that can kill a new person’s first day excitement, it is the non-compete agreement. If there is any single document that can rock the foundation of a loyal employee’s trust in a company…well.
Now, I am not questioning the legality of non-compete agreements (there has been quite a bit of legislation and court rulings that muzzle those agreements in many states) but under many circumstances, they simply aren’t necessary or are overly restrictive.
Now the idea behind a non-compete is pretty harmless: making sure your competitors don’t take trade secrets through taking top executives and other principle people of an organization. What it has become is a tool of intimidation with overly broad definitions of competitors (or none at all), blanket use throughout all levels of an organization and long timeframes.
When are non-compete agreements ok? Under the following conditions:
- The competitors are defined. Competitors should be clearly labeled and/or conditions of being a direct competitor being clearly defined. There should be no doubt that if you work for ABC Widgets and you leave to go to work at XYZ Widgets, that should be a clear breach.
- The people covered hold clear and concise trade secrets. The receptionist, worker bee or your general worker should not be covered under a non-compete. Neither should most of your middle managers for that matter.
- Those covered should be highly compensated. $100k+ sounds about right but it could be more or less. There should be a pay threshold though. It gets back to what a non-compete should truly cover.
- Two years after termination should be the maximum they can be enforced. I don’t care what industry you are in, if you can’t figure out a way to survive in two years, you deserve to be out of business.
Ultimately, I hate non-compete agreements because they stiffle innovation in a time when it is so desperately needed. If you see something that needs to be changed and your company won’t listen to you, you are out of luck and your ideas get lost. And that is really too bad.
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They are (mostly) unenforceable in Texas anyway, as it is a “Right To Work” state. That is, all of the reasonable limitations that you mention above are already part of the law here (can’t bar someone from an entire industry, for instance).
My question has always been if you can’t trust the people that you’re hiring, why are you hiring them?
Dan
In Virginia, can an original noncompete agreement that an employee signed be legally binding if said employee terminated employment and was then rehired? Is it not necessary to sign a second noncompete agreement upon rehire in order for it to be legally binding?
Thanks.
Are non-competes enforceable in Philadelphia, Pennsylvania. Are they enforceable to a commission salesperson at a used truck dealership? I’m being asked to sign one after one (1) month of employment, before getting my first pay check for the trucks I’ve sold. The agreement covers two (2) years and a 100 mile radius.
It says I shall not “own, manage, operate, join or control, participate or engage in ownership, management, operation or control of, or be a director, stockholder or an employee of, or a consultant or independent agent to, any business, firm, corporation or other entity which conducts any business which competes with the business of “X” as conducted by “X” at any time during the term of this agreement, within a one-hundred mile radius of “X” principal office in Pennsylvania or any other regional location of “X” where sales agent performs services.”
This seems to be a bit too restrictive. What do you think?