At least three or four times a week our candidates inform us that their non-compete agreement “doesn’t mean anything in Texas” or “It’s not enforceable in Texas”, etc. I have no idea where people come up with these ideas, but they are absolutely wrong. Non-compete agreements are enforceable in Texas (and in most states) and don’t let anybody ever kid you and please don’t believe them. I’m going to address some of the things that we mostly run into regarding non-compete agreements. Realize, though that the best legal advice about non-compete agreements should come from quality attorneys. Two of the most prominent labor attorneys in the city happen to be guys that have contributed to our radio program, The Job Search Solution ,every Monday through Friday from 8 PM to 8:30 PM on 620 AM, KXEB Dallas. Stephen Key can be reached through his firm, Key Harrington and Barnes at 214-615-7925. Russ Brown of the law firm Brown Fox Law, can be reached at 214-613-3350. Every Friday evening we interview Stephen Key about all kinds of legal issues in employment and we probably get more questions about non-compete agreements than anything else. I am personally NOT giving legal advice here. You’ll have to get that from these guys. But I am going to address some of the common issues we run into as recruiters.
The first one I’ve mentioned above and it’s that the candidate doesn’t think his or her non-compete agreement will be enforceable. It may or may not be enforceable, but the idea that they don’t mean anything in the state of Texas is totally nuts. If you are an employee and you have a non-compete agreement you’d best get the advice of an attorney (the guys above) before you whimsically think that it won’t matter. We have placed candidates who were never asked about their non-compete agreement by the hiring authority, never mentioned in the interview about their non-compete and then after they show up for work, both they and their new employer get a threatening letter from their previous companies attorneys. Often, their attitude has been, “It doesn’t mean anything,” but their new employer has enough problems and doesn’t want to deal with any more hassles. More often than not, the new employee will get terminated right then.
Thirty five or forty percent of the time when I ask a candidate about their non-compete agreement, I’m told, “I don’t know if I have one or not.” At this comment I seriously wonder if I ought to be working with this candidate at all. If he or she isn’t bright enough to know whether or not they have a non-compete, it’s questionable as to whether they are going to be a good performer or not. Having said that, though, I’m amazed at the number of quality candidates who truly don’t know if they have a non-compete agreement and, what’s even more hideous, or stupid, is that they don’t know where their copy of it is. In fact, what brought this whole idea up for this topic was a candidate telling me this week that he knew he had a non-compete that he was absolutely certain that his company did not give it to him. I assured him that if they had gone to trouble to require a non-compete agreement upon hiring him, they were smart enough to be sure that they gave him a copy of it.
The guy went home to look through his employment papers that he thought he could find somewhere. He called me and said that he had looked around and couldn’t find any non-compete agreement and, he literally asked me how he would get one. (I can’t make this stuff up.) After a few minutes of discussion he came to the conclusion that the only way he was going to find a copy of the agreement he signed was to ask the human resources department for a copy of it. It didn’t take more than a moment for him to come to the conclusion that if he asked the HR department for a copy of his non-compete agreement it would certainly raise a big red flag. I suggested that he find a recently departed associate, and ask one of them for a copy of theirs, because usually the agreements are the same for most firms. He suggested that he could ask one of his close friends at the company and I reminded him that that is still a risky thing to do. We left it that he is going to think about how to find a copy of what he signed.
Simply put, a non-compete agreement typically restrains employees from engaging in a competing business with his or her former employer, in a certain geographical area and for a limited period of time following the termination of the employment relationship. Where the issues of non-competes become contentious is the interpretation of who a competitor really is, the reasonableness of a geographical area and the reasonableness of the period of time. I have personally read some non-compete agreements that communicate competitors to be just about anybody in any kind of business, geographical restrictions to be the whole world and time restrictions as being infinity, or close to it. When legal battles occur, they usually occur over these issues.
Knowing your company’s history of enforcing or trying to enforce non-compete agreements is important. I’ve had candidates tell me things like, “Well they haven’t ever gone after anybody over non-compete, so they won’t come after me.” According to Russ Brown, that is a fallacy. There might be a big difference in the impact of a CFO going to work for a competitor and that of a low level inside customer service rep. Just because your present company doesn’t pursue non-compete agreements with some parting employees doesn’t mean that they would not pursue one with you.
Some companies we do business with are extremely aggressive about enforcing their non-compete agreements. These organizations aggressively threat, and if need be, sue every ex-employee that goes to one of their competitors with the full intent of going to court, keeping the candidate from working and even seeking economic damages. The cost of money and time does not matter to them. They pursue everybody, regardless of the job level. These firms usually make it very clear to everyone who works in the company that they have no qualms about protecting themselves.
Some companies would rather negotiate with the exiting employee about limitations and come to an agreement about what everybody will or won’t do. The majority of organizations in the United States don’t want legal hassles, much less the expense and distraction they cause. So, often, these organizations will come to a “non-solicitation” agreement with the candidate who is leaving to go to work for a perceived competitor. Basically, these agreements state that the exiting employee will not communicate, sell to, or solicit the specific customers/clients they had worked with while being employed with the company they are leaving. An employee leaving the company should have a really good idea before they go to work for a competitor how their organization deals with this. Just remember that every case might be different and just because they might’ve come to this kind of an agreement with a previous employee who left doesn’t mean that they would agree to it with you.
In situations where companies are laying people off, they may request a non-compete agreement in order to receive a severance package. Most candidates that make this kind of an agreement understand exactly what they agreed to.
Interestingly enough, since 1973, I have seen very few who received a violation of a non-compete agreement go all the way to court. The major reason is – it’s expensive. Most companies are a lot more willing to go to this expense than the departing employee. Some companies, in trying to enforce their non-compete, will threaten to sue not only the candidate, but the company the candidate has gone to work for. Ninety-nine percent of the time the employee’s new company doesn’t want to have anything to do with a lawsuit, especially over an issue like this. (I have, however, known firms who will agree before they hire a new employee to take on the responsibility to defend that employee as well as themselves if a lawsuit comes about. It’s very rare and he did his only for a very high level position.)
Even if the initial stages of a threatening lawsuit begin…i.e. a “cease and desist” letter is sent and/or attorneys on both sides have to begin negotiating, it’s going to cost the new employee money. I read recently that the average cost for a candidate to negotiate a non-compete arrangement, to everyone’s satisfaction, after they had gone to work for the competitor, was $12,000. Some opportunities may well be worth that kind of investment. But when you consider the emotional and psychological strain of this kind of hassle along with the money, most people aren’t willing to do it.
On top of all of this, a new employer, unless they make some kind of agreement to avoid violating a previous non-compete agreement, is going to question your ethics, thinking that, “If you’d steal for them…you’d steal from me.” On the rare occasions that I have seen a lawsuit come about, don’t be surprised if your new employer begins to distance themselves from you just a bit. This is especially true if they are also being sued. Even though they might have agreed to experience this hassle with you, in their hearts, they never really expected a full-blown lawsuit. So, unless you’ve produced five or $10 million in revenue pretty damn quickly don’t expect them to back you up like they said they would.
There are all kinds of facets of a non-compete agreement other than the ones we’ve mentioned here. Most of the issues are not very pleasant. So, if you begin to think that your non-compete agreement doesn’t matter…think again.