Post-hire non-competition agreements

I work for a company whose “sister company” is an alarm company. The boss of that company used to work for another alarm company in town and split off many years ago to form his own company. I’ll call our “sister company” “A” and the other company “B”.

Lately, people from B have been coming over to A. B has gone to its remaining employees and told them they have to sign a non-competition agreement or they would be fired. It’s a poorly-worded agreement. Conceivably, it would prohibit someone even from buying gas from a station that is protected by B’s alarm system, should that person quit. Aside from that, B’s employees were not hired under the condition that they could not quit and work for the competition. Can B legally retroactively require them to sign non-competition agreements, and fire them if they don’t?

If the employees of B are at-will employees, they can be fired for any non-discriminatory reason at all. They can be fired if the boss doesn’t like their shoelaces, or if he just feels like firing a few people, and draws names out of a hat. The only things he can’t do is fire them because they’re black, or because they’re handicapped, etc.

There are some exceptions to this, but they usually revolve around things like implied contracts. For example, the employee handbook states that employees are given one hour for lunch. An employee is fired for taking 45 minutes for lunch. He might have a case (but don’t count on it too heavily!).

If the employees are unionized, or if they actually have written employement contracts, that changes everything, since they will have a contract that spells out the conditions of their employment in considerable detail.

I think a better question might be, “Do those non-competition agreements carry any weight at all after the employee leaves Company B?” In other words, legally, what can Company B actually do if one of other employees actually does leave to work for Company A?

Without the text of the contract in hand, that’s a tough question. In fact, even with the text of the contract in hand, it would be a tough question. Some overly-simplified observations…

Two adults can contract for any legal object, and the courts will enforce the terms of that contract (for example, the courts won’t enforce a contract that says that A will pay B $5000 if B robs a bank). So, if the contract here says that employees of B can’t go to work for another alarm company for one year after leaving B, and an employee does exactly that, B could sue for damages.

Things get a lot murkier when the contract is badly worded, but as a general rule, if the contract is ambiguous on any particular matter, the ambiguity is resolved against the drafter. In other words, B wrote the contract, so if it’s not clear what the contract means, the court will interpret it in favor of the ex-employee.

Things get even murkier if the terms of the contract are so lopsided that no reasonable person would think it was a fair agreement. “If an employee of B leaves the company, he must divorce his wife, disown his children, move to Chad, and never set foot in the U.S. again.” This is called an “adhesion contract:”


Thanks, Early. I was interested in this subject as I’d recently read an article in the Wall Street Journal last month (which, of course, is now in their premium online section–it’s in the June 14 edition, if anyone can find it) about a similar situation involving an executive at a records-storage facility in our state. I suppose the difference would be that the executive was likely a contracted employee, but the article pointed out, as you did, that the non-competition agreement, even with a carefully-worded contract, was still very murky.

Frankly, with all the hassle that the multi-million dollar records-storage facility enduring in pressing their claim of contract breach, I wonder whether an alarm company would even bother with that if an employee did sign the contract and jump to company A. But that’s not germane to GQ

IANAL, but in my experience, most non-compete agreements are all but unenforcable. You cannot prevent someone from legally earning a living, and since that living would most likely be in an industry commiserate with their education and experience, the odds are pretty high that they would go to someone who operates a similar business. Now obviously, they can’t steal information (process info, product info, customer lists) and take it with them, but that’s illegal without a non-compete anyway.

Then there’s the whole “I signed it under duress” (sign or your fired) defense, which can defeat even well-written non-competes.

There’s some misinformation here. I’m running late already today, so I can’t go into detail now (I’ll try later), but post-employment restrictice covenants are, if properly written to protect a valid interest of the employer and not overbroad, enforced by U.S. courts. I’ve written such covenants, enforced them, and defended employees and new employers against suits based on overbroad covenants.

State laws vary widely on this issue. I’m unaware of any state where such covenants are automatically unenforceable, though.

Yeah, as a practical matter, I’d expect to see a lot of threat and bluster, but nothing beyond that.

Since you’re around, could you elaborate a bit on what kinds of restrictions have been ruled overly broad (or not) in your experience, and in Illinois (a state of interest to me for obvious reasons)? Is there any distinction for this purpose between a pre-employment noncompete agreement and one signed as a condition of continuing employment?

I had to sign one before I started this job, and one of these days I may no longer be employed here. So far this firm hasn’t attempted to enforce the contract against departing employees, including ones who left for the competition (or one who left to start up his own firm, but not locally). But hey, I’ve got a paranoid streak, and it would be nice to have an idea what my rights are.

Illinois case precedents vary more than usual in this area of the law. The outcomes tend be be very fact-dependent. There are also many kinds of employment covenants. Noncompetes are designed to prevent the employee from working for any competitor in a specified geographic area for a specified period of time. Nonsolicits prohibit the solicitation of the old employer’s customers/patients. Nondisclosures restrict the disclosure of confidential information.

Enforcement requires a showing that the employer has a legally - protectible interest in the subject of the covenant. There are (fairly complex) tests that courts use to try to determine this, which I could describe, but unfortunately, I can’t spare the time right now. (Also, I’m not sure how useful such a general treatise would be. A proper analysis really needs to start with the contract and the facts surrounding the employment. If you like, feel free to e-mail me to discuss.)

In the case of noncompetes, the time and geographic limitations also have to be reasonable. Again, there’s no bright-line limit that’s applied. It depends on the business and other circumstances. One year is almost always okay. When you get much beyond two years, courts start to get concerned. Permissible geographic limits vary even more, depending on the circumstances.

I may very well take you up on that when the time comes, but first I’d have to find my copy of the stupid thing. Thanks for the offer, though.

The enforceability of non-compete agreements varies from state to state. Therefore, it would be very dangerous for a lawyer practicing in one state to give advice to a worker from another state, and it would be very dangerous for a worker to rely on advice given on a message board unless that advice is state-specific.

That said, as a general principle, non-compete agreements are considered to be agreements in partial restraint of trade and are therefore viewed unfavorably by the courts. In most states, they will be enforced only where they are very narrowly drawn (in terms of geographical restrictions, the list of activities prohibited and the duration of the prohibition) to protect the employer from unfair competition.

In some states, the courts will “blue pencil” a non-compete that has an unenforceable clause, and will enforce the remainder of the agreement. In other states, one overly-broad clause voids the whole non-compete agreement.

Another issue is whether any “consideration” was given in exchange for the non-compete. (A contract without consideration is generally void and unenforceable, though there are exceptions.) Did the employee receive anything of value in exchange for the non-compete? Does “continued employment” count as a thing of value? The answer to that question may also vary from state to state.

Not so in The Old Dominion. Damn near all the radio and television stations in town hire everybody with a non-complete clause in the contract, and I have yet to hear of one that didn’t stand up in court. And this in fact prevented those people from earning a living in their chosen field for periods of 6 months to 1 year, if they decide to stay in this area (“market”.)

Oh, and as to the mechanics of how these agreements are enforced, they are generally enforce with an injunction.

If Employer A finds out his former employee has gone to work for Employer B in violation of the non-compete, Employer A will typically file suit against the employee, seeking an injunction to restrain the employee from working for Company B. That is often joined with a claim for money damages, and sometimes joined with a claim against Company B for intentional interference with contractual relations (if it appears that Company B knew about the non-compete agreement and hired Company A’s former employee anyway).

If the court decides to enforce the agreement, the judge enters an order barring the employee from working for Company B for the duration of the non-compete agreement. If (after an injunction is in place) the employee violates this injunction, he/she will be in contempt of court and face court-imposed fines and possible jail time.