Noncompete Blues
Question:
I was so stoked when the premier firm in my area of professional services hired me that I did something I’ve wanted to do for a long time. I told my former manager what I thought of her. She ordered me to leave her company immediately. No problem, I had a new job to go to.
I also had my entire future mapped out. I’d work for my new employer for a year, learn everything I could, and then start my business. I told all my friends my new job was the ideal stepping stone.
On my first day when I went through orientation, my new manager handed me an employment agreement that included a noncompete agreement. It was a complete shock. I’d never seen one before.
I must have sat in silence for a few minutes because the manager asked if I had a problem. I shook my head “no” and signed it. I had no other choice. Two weeks earlier when I interviewed, I’d been asked the standard, “How long do you anticipate staying at this job if hired?” question. I answered what I’ve always told interviewers, “I hope to hold this job for a very long time, and perhaps work my way up within the firm.”
Except I don’t. I want to start my business within a year. But this noncompete says I can’t until a year after I separate unless I base my business at least fifty miles from Anchorage. How much legal trouble will I find myself in if I start my business? Can I break the noncompete? Will the fact I had no recourse help? Or that they didn’t advise me of the noncompete when they offered me the job?
Answer:
You might not need to break the noncompete; it might not be worth the paper it’s printed on. An attorney can answer the questions you raise. You face other challenges, however, if your employer discovers you intentionally deceived them.
Legal issues
Here’s what’s happening with noncompetes. On January 5th, the Federal Trade Commission (FTC) proposed a ban on all noncompete agreements, including ones signed before the ban takes effect, https://www.ftc.gov/news-events/news/press-releases/2023/01/ftc-proposes-rule-ban-noncompete-clauses-which-hurt-workers-harm-competition. The FTC has already charged several companies with violating the Federal Trade Commission Act’s Section 5 which prohibits ”unfair or deceptive acts or practices in or affecting commerce”. The FTC alleges these employers’ noncompete agreements restrict employee job mobility and unlawfully harm competition.
Additionally, a bipartisan group of Senators (Murphy, Young, Kaine and Kramer) just reintroduced the Workplace Mobility Act of 2023. This Act bans the use of post-employment non-competition agreements, https://www.michaelbest.com/Newsroom/307608/Workforce-Mobility-Act-of-2023-Another-Attempt-to-Ban-Noncompete-Agreements-Nationwide. Laws in multiple states also prohibit noncompete agreements, https://www.dorsey.com/newsresources/publications/client-alerts/2023/2/noncompetition-agreements-under-scrutiny#:~:text=Colorado%2C%20Illinois%2C%20Maine%2C%20Maryland,professions%20such%20as%20healthcare%20workers.
Employer’s position
Despite this changing legal landscape, employers that consider noncompete agreements essential to their operations may litigate the FTC’s ban. Multiple employers, like the one you now work for, consider noncompete agreements essential to their ability to survive. As a result, one out of every five U.S. workers operates under a noncompete, Noncompete Clause Rulemaking | Federal Trade Commission (ftc.gov).
If these employers find themselves stripped of their power to bind employees with noncompete agreements, they fear they’ll hire and train employees to be effective, provide employees trade secrets and proprietary strategies they’ve spent years perfecting, and then discover they’ve trained and equipped their competition.
If the Act and ban become law, employers such as yours will likely replace their noncompete agreements with nondisclosure and non-solicitation agreements, prohibiting their employees’ ability to use confidential, proprietary or trade secret information acquired while on the job, or to market afterwards to any of their former employer’s clients or customers.
Other trouble
You face other problems. If your employer learns you intentionally deceived them during your interview, they may use employment at will, which gives them the right to fire you for any reason that doesn’t violate public policy. Worse, they may attempt to squash your new business a year from now. Why? Because they may feel you “used” them—and you did.
Finally, you raise interesting questions. You might not have taken the job or told off your former manager if you’d known about the noncompete. Most employers don’t, however, tell applicants all the policies they’ll have to sign on day one. Also, you had recourse. You could have refused to sign the noncompete, left and looked for a new job. You may still want to do that before your new employer replaces the noncompete with nondisclosure and anti-solicitation agreements. Also, you’ve told a lot of people your intent to use your employer as a “stepping stone.” If your new employer becomes aware you’ve taken their job to learn what you can to compete with them, you may make a powerful enemy that will do everything they can to put you out of business.
(c) 2023 Lynne Curry
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Non-compete, non-disclosure, non-whatever, this person describes a completely self-serving, deceitful tactic to further themself at the ‘expense’ of the employers they convinced to hire them.
The most brazen part is grieving over deceiving, and then finding out they got caught!
Why is it that so many people – employees, employers, and just-plain-folks so regularly intentionally set out to take advantage of a situation without any thought of ethics, honesty or remorse? It seems to be the way-of-the-day nowadays.
If this person was fired on day ONE, they would have brought it upon themself, and deserved it.
Completely agreed. When the 30-something man called me for help, he reminded me of people I’d hired (who successfully pretended) and employers I’d coached who hired similar people. I then researched what’s going on, and realized the plight of many hairdressers who find them stuck working for the wrong salon and having a hard time moving elsewhere. So I realize there’s truth on both sides. But employers who need noncompetes need them for real reasons. And the salary differentiation between who needs them and who doesn’t won’t work, because a competing firm might hire the low-paid employees of another firm to capture trade secrets. So it’s important to protect those trade secrets.
As ever, Dan, great reaction, spot-on, and brief! I totally agree with your comments, and with you, wonder about what such behaviors bode for the future as they grow more prevalent.
Thinking about the probable answer to the question posed in the headline to this post I thought, “it depends, probably.” Then I read the post. This person is not very ethical but is self-righteous and pretty much self-involved, all the same. Many people in the “entrepreneurial” side of business, as one-person small business startups once were called, tell others seeking to start their own business that it’s best to make your business a side hustle until you are consistently making enough money that you can afford not to have or need a wage job. The poster hasn’t thought about the statistics on all the startups that fail within the first five years. Merrily burning all their bridges behind them, they may have a hard time finding other work. Also did it occur to them that one of the ways you find clients for your business is from people who remember you when you worked for another employer. You may be remembered, but the memories may not all be so favorable. Customer service, engaging in long-term thinking, thinking about your actions and deeds that have consequences, actually caring about other people all are important here and mostly missing. Pay attention to Lynne’s legal tips about noncompete, nondisclosure, and nonsolicitation agreements: they matter!!