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Non-Compete Agreements: Likely Unfair, More Likely Enforceable

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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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