In the last segment of this series, we focused on concerns for employers in drafting and enforcing restrictive covenants. The choices for employees are fewer, and none of them are good. Employees are generally asked to sign restrictive covenants at two points: either at the beginning of their career or upon a promotion or other significant improvement in employment status. Such agreements diminish employees’ choices should they want to move on from their current employment, whether or not the restrictions are actually enforceable.
Some employers require employees to sign a restrictive covenant at the outset of their employment. If the employee was recruited and has other employment choices, the employee has some bargaining power to reduce the duration or scope of the restrictions. But this is seldom the case, and the law recognizes that employees generally have limited (or no) bargaining power in these situations. The law disfavors restrictive covenants for precisely this reason: the agreement imposes a post-employment restriction that may hinder the employee’s ability to earn a living at a time when the employee has little or no bargaining power to negotiate the restriction.
This calculus changes a little when the employee is required to sign a restrictive covenant in conjunction with a promotion or other benefit, such as participation in a stock option or bonus program. Then the employee has to decide whether the value of the promotion or other benefit is enough to justify agreeing to the post-employment restriction. Where it is not, the employee can refuse to sign, forcing the employer to decide how valuable this employee is to the employer. However, the employee should factor into this decision that the employer is free to terminate the employee for refusing to sign. And, this might be a good thing, as the employee will be leaving the employer without a noncompete.
Frequently, employees breach the restriction without consulting an attorney first based on the widely held, mistaken, belief that courts do not enforce noncompetes. Let’s be clear: courts will enforce noncompetes where the law permits them to do so. More importantly, the old employer will sue the employee and the employee’s new employer for breach of the agreement. The new employer may terminate the new employment to avoid the costs of litigation. Litigation regarding these matters is expensive, time-consuming and stressful. Practically speaking, most employers will refuse to hire an employee with a restrictive covenant even if it is unenforceable for any number of technical reasons we have discussed in this series.
At the very least, employees should consult an attorney prior to signing, even if they have limited bargaining power, to understand the restrictions in place. We can help employees with that review, and we can help employees navigate the minefield of finding new employment when they have a noncompete in place.