Non-Compete
After working for a small computer consulting firm in NY for over 2 years, I signed an employee agreement addendum with broad, new non-compete and non-solicitation clauses. There were no such clauses in my original employee agreement at all. I did not receive any form of compensation for this new agreement and was told that payroll would not be processed until everyone had signed his or her forms. The addendum prohibits me from working for any competitor or for any current or former client while employed at the firm and for a period of 24 months after termination (for any reason). Three months ago I was laid off. There is now a computer job available at a current client of my former employer. Am I free to apply? My relationship with this client predates that of my former employer – I was an employee at this client in the past. The client has a non-solicitation agreement with my former firm, but it only pertains to current employees, of which I am no longer one. Please help. Thank you.
1 answer | asked Jan 21, 2004 01:59 AM [EST] | applies to New York
Answers (1)
I think it is always worth remembering that, if you sign an employment agreement with a non-compete provision in it, you are buying a potential lawsuit. Because my experience is that employers usually start using non-competes only when employees can fairly easily change jobs, I think new hires should just walk away from jobs where employers insist on non-competes. (A lot of employment attorneys disagree with this position, saying that the likelihood is that the employer will never enforce the non-compete, so it makes no difference whether you sign or not.)
As to existing employees who suddenly find the employer shoving a non-compete under their noses, there are options. Existing employees can collectively refuse to sign. In acting collectively, the employees get protection similar to that enjoyed by unionized employees. If an employer threatens to withhold wages if an employee fails to sign the non-compete, the employee can go to the Department of Labor. In NYS, with very few exceptions, it is illegal for an employer to withhold wages. (But, the employer could probably fire the employee, unless the employee acted collectively with other employees.)
Under NYS law, an employer is generally free to change the terms of employment at any time, for any reason or no reason at all. The employer can take away benefits, and lower pay rates, although employers cannot do this retroactively. The employer's ability to do this is part of the employment at will doctrine. So, the employer does not do anything illegal by requiring existing employees, who for years may have worked without such agreements, to enter into non-compete agreements.
But, as has been said many times in this website, in NYS, courts generally disfavor non-competes. Agreements containing non-competes are valid, but courts will in essence write out the non-competes because non-competes violate at least two public policies: the public policy favoring competition in the marketplace, including for employee-talent; and the public policy favoring people working, making a living and paying taxes. In other words, courts are likely to especially disfavor a non-compete involving a laid-off employee who is simply trying to make a living in a trade or business for which the employee is best qualified.
None of what I have said should be taken to mean that the employer will not or cannot sue the former employee who signed the non-compete. Remember what I said: If you sign a non-compete, you are buying a potential lawsuit. I am only saying that, if the employee is sued, and there is no guarantee that the employer will sue, the employee is likely to win.
Whether the employee will win on a non-compete depends on the facts of the case. Generally, what will be important will be the nature of the employer's business, the nature of the work performed by the employee, the nature and extend of competition in the market served by the employee and employer, and the precise terms of the non-compete. Non-competes of long duration and broad coverage are less likely to be enforced. The more generously an employer compensates an employee for staying out of the market, the more likely the non-compete will be enforced. If I were advising an employer, and the employer wants to keep an employee out of the marketplace for a year, I would tell the employer that, if the employer wanted a guarantee that the non-compete would be enforced, the employer should pay the employee a severance package worth about one year of pay.
posted by David M. Lira | Jan 21, 2004 09:18 AM [EST]
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