By: Maureen E. Harrop
December 12, 2008

During my tenure in the human resources field, I did not have experience with non-compete contracts. However, they are a strong factor in today’s employment market. Due to my lack of knowledge of the subject, it was necessary for me to research this topic. The most informative article I unearthed was Marshall Tanick’s, “Non-Compete Contracts: Uses and Abuses.” I will discuss the contents of this article later in this document, but first I want to share a true story regarding a non-compete contract that happened to a friend/colleague of mine who works in another industry.

In my opinion, it’s an example of a company’s complete abuse of a non-compete contract.

We’ll call my friend Joe. Joe had been with a company for 15 years and during that time, the company was bought and sold six times. Although the management turnovers were very disruptive to his work life and the company’s customers, Joe stuck it out. During one of the buy-outs, his non-compete contract was ruled ‘null and void’ by the CEO at the time. This CEO drafted and signed an Affidavit outlining the dissolution of Joe’s non-compete contract. Joe had a copy of this Affidavit. When Joe decided to leave the company and open his own business, the new company which had bought out the company that voided the contract threatened to sue him, based on the voided non-compete contract. Joe disregarded their threat, because he realized they were upset with him for leaving due to his long history with the company, and because he was their highest grossing salesperson.

However, although the CEO who released him from the non-compete contract was willing to testify but wasn’t allowed to by the company suing him, Joe spent two years and $15,000 in legal bills defending himself against this company and this erroneous charge. The simple matter was – the company suing him had lots of money, an attorney on staff, and a mean-spirited CEO. During those two years, Joe wasn’t allowed to launch his new company and had to scrape together the money to defend himself. What a tragedy.

Now to the Marshall Tanick article. He states, “Contrary to common misperceptions, courts generally uphold these non-compete clauses if they comply with acceptable standards. Some states – notably California and, to a lesser extent, New York – impose substantial restrictions. In California, they generally are not enforceable at all. In New York, their enforceability is quite limited.

But in most states, reasonable agreements are enforced by the courts through orders that prohibit employees from engaging in conduct that violates non-competes. Employers also can be held liable if they hire someone who violates an agreement with a previous employer by sharing secrets or by taking a job at their company. In some cases, employers can recover damages from both the former employees and their new employers who collaborate with them in the transgressions.
Most non-compete agreements are entered into with little, if any, negotiation between the employer and the employee. They usually are signed at the outset of an employment relationship. The employee has very little bargaining power and generally is not too concerned about limitations on future employability when beginning a new job. Consequently, employers generally present these non-compete agreements on a take-it-or-leave-it basis, and most employees have little ability or motivation to decline to sign them or to negotiate less onerous terms.
But when an employee decides to leave a job, the non-compete agreement may be a significant impediment to future employment or may prevent employees from becoming self-employed. Although the laws differ from state to state, general principles apply to non-compete contracts in most jurisdictions.”
Tanick then goes on to discuss components to keep in mind when creating such contracts, such as the Rule of Reasonableness, the New Employer Liability, Duration, etc.
For more information on Tanick’s article, as well as his experience, visit this site: http://labor-employment-law.lawyers.com/employment-contracts/Non-Compete-Contracts-Uses-and-Abuses.html
For additional information on non-compete contracts, visit these sites:
http://www.ballmanfirm.com/Non-competearticleemployee.pdf
http://www.xconomy.com/boston/2008/08/08/ca-reaffirms-that-non-competes-are-non-starters-will-ma-and-wa-listen/
Maureen Harrop is President of Claridis, Inc., a training and consulting company, specializing in the Latino/Hispanic workforce. Claridis has produced Telly Award-winning videos in Spanish, utilizing Latino actors. These films are unique because they are not dubbed or subtitled. They were designed for use by training and human resource professionals for their bilingual and Spanish-speaking employees. English versions are also available. Maureen has a Master’s Degree in Education and has been in the human resource/training field for 27 years. Customer service training is an additional area of expertise for Maureen.

For more information, visit her web site: www.claridis.com or e-mail her at maureen@claridis.com or call (888) 701-2879.

Copyright © 2008, Claridis, Inc.
All Rights Reserved