Non-Compete Agreements: Likely Unfair, More Likely Enforceable

Don Tennant

Scenario: You're an IT professional who was laid off eight months ago, and you're getting desperate. You've applied for dozens of jobs, but you've received responses from only 25 companies, and you've had 14 phone interviews that resulted in eight in-person interviews. Only one of those in-person meetings resulted in a callback, and it finally yielded a job offer. The only glitch is that your potential employer is compelling you to sign a restrictive non-compete agreement. Should you sign it? And if you do, is it enforceable?


Some variation of that scenario has been experienced by hundreds of unemployed IT workers, and the non-compete questions are becoming increasingly common. Employers, who are very much aware of the growing desperation of job candidates, are getting increasingly cavalier in their demands, and are often perfectly willing to take advantage of that desperation. Let's hold off for a moment on the question of whether you should sign a non-compete, and focus on the matter of enforceability.


According to the Society for Human Resource Management, the enforceability of non-competes varies from state to state. In California, non-competes are illegal altogether. In some states, including Ohio and New York, they're routinely enforced; in others, they're enforced to varying degrees, depending on the strictness of the agreement.


The enforceability question is an intriguing one, because there seems to be a widespread presumption that they're unenforceable. We're all aware that every state has ridiculous, often comical, laws in its books that clearly aren't enforced. In Massachusetts, where I live, it's illegal for women to be on top in sexual activities, and you're subject to a $10 fine if you deface a milk carton.


Now, I'm no expert, but it seems to me that it would be tremendously imprudent to lump enforceability of non-compete agreements into that category. If it's legal, you have every reason to presume that it's enforceable, so it's probably a bad idea to pretend that enforcement doesn't exist. It's encouraging, though, that some states are looking at reforming their non-compete laws.


In Massachusetts, where a reform effort is under way, a strong case is being made to follow California's example and to ban non-compete agreements. Russell Beck, a partner in the law firm Foley & Lardner LLP, points to a particularly compelling argument being made by venture-capital interests:

Certain recognized voices in the venture capital (VC) community have become increasingly vocal in their call for the abandonment of noncompete agreements in Massachusetts. Noncompetes are agreements that impose post-employment restrictions on a former employee's ability to compete with its prior employer. These VCs believe that noncompete agreements stifle an employee's mobility and innovation and, therefore, VC interest and investment. In support of their position, they point to the relative success of Silicon Valley's tech industry as compared with Boston's 128 high-tech corridor. They believe that Silicon Valley's comparative success is directly related to the fact that California prohibits noncompete agreements, while Massachusetts permits them. They contend, therefore, that by banning noncompetes, Massachusetts could reinvigorate VC investment and resultant innovation.

If non-competes stifle investment and innovation, that's bad enough. But the fact that they stifle employment opportunities and are too often used to unfairly tie the hands of prospective employees is the immediate concern.


Should you sign one? That's a deeply personal decision that will be driven by any number of factors. But my advice would be to avoid allowing a presumption that it's unenforceable to sway your decision. Any advice or helpful information you can offer your peers, based on your experience or investigation of the matter, would be very welcome.

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Jan 13, 2010 11:50 AM R. Lawson R. Lawson  says:

In many states, non-competes are not enforceable.  That doesn't stop either uninformed or perhaps uncaring companies from including these agreements as part of employment terms. 

What is more dangerous than non-compete agreements with employees is when companies agree to not compete against each other.  An example of this would be staffing firms.

I ran into this recently.  I wasn't looking for work, but a staffing agency called me trying to convince me to take a job with another company - they had my resume on file.  The conversation ended abrubtly when he realized they have a non-compete with the company I work for.  Not that I wanted that job anyways, but it left a sour taste in my mouth.

Because I run a local technology group and have hundreds of IT workers in my mailing list - and often pass job leads on - I no longer pass their leads on.  I wouldn't encourage people to work for companies who are anti-competitive.

Just to put this in perspective, I work in a "at will" and a "right to work" state.  This means that employees and employers can go their separate ways for any reason and that unions have no chance.  In short, labor has very little room negotiate - it's everyone for themselves.

Maybe some people are ok with that.  But if you want a truly free labor market you should also oppose anti-competitive measures like non-compete agreements.  Companies should not have it both ways.

I've mulled running for state legislature for years now... one day I just might do it if the stars align.  This is one of those issues I would champion.  The solution is for the department of labor (at the state level) to have more teeth when it comes to imposing fines for labor violations.  People won't sue companies - and usually when they do the awards don't justify the legal hassle.  This is where the DOL should be stepping in.

The US DOL, until recently, had no power.  I couldn't tell the difference between them and the DOC.  Hopefully they start asserting themselves again.

Jan 14, 2010 12:01 PM R. Lawson R. Lawson  says:

As to the question - should I sign it?

Usually the answer is quite practical.  Do you need a job, and how bad?  Do you need THIS job?  How restrictive is the non-compete, and when does it expire?  Is the non-compete enforceable in your state?

If the non-compete isn't enforceable, personally I would just sign it and keep mum.  They are hoping you are uninformed enough to adhere to something that is not legal in the first place.

If the agreement is enforceable in your state, consider your situation and weigh carefully the non-compete provisions.  I'm a big fan of taking a stand when you are being unfairly treated, but I also think it wise to pick your battles carefully.  Is this your battle? 

Feb 2, 2011 3:44 AM Jeff Jeff  says: in response to R. Lawson

I signed a non-compete that listed NY as the state of Governing Law.  I live in MA and am considered a MA employee.  These two states have very different views on non-competes. 

Because the non-compete is NY governing law, do I face NY enforcement even though I live in MA?


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