Whether you’re an independent contractor who’s landed a great new project, or a new employee starting a full-time job, you might be tempted to sign whatever boilerplate contract is put in front of you.
Take John Doe (obviously not his real name, for reasons that will become clear in a bit), who worked onsite at a large company as an employee for a smaller business. He had signed a contract with a non-compete clause, which forbade him from taking a new job where he would compete with his employer. Before his first year on the job was up, his position was eliminated—but since he already had a relationship with a manager at the large company, he could work as an independent contractor for a new team.
Unfortunately, his new contracting gig with the large company competed directly with the position he’d previously occupied at the smaller business. Because he lived in an at-will state, he researched whether businesses could enforce non-compete clauses in his jurisdiction, and found conflicting results. So he decided to take a chance and maintain his contractor work.
Three months into the new gig, both he and his new employer received a cease-and-desist letter, complete with threat of lawsuit—even though his contracting work was very different from what he’d done in his previous position. (Whereas he’d formerly worked in project management, now he was an analyst.)
John Doe eventually signed a settlement agreement for thousands of dollars, which forced him to declare bankruptcy after making his first payment. Not only that, but the stress affected his work quality, and he was eventually let go from his new position. Since he was an independent contractor, he didn’t qualify for unemployment, and it took him months to find new work.
Now Doe recommends that job candidates attempt to strike out the non-compete clauses on their new contracts, or at least make sure the language is incredibly specific. But even focusing on the language, he points out, doesn’t prevent someone from interpreting it in a way detrimental to your interests: “The best bet is to just remove it altogether.”
He also recommends having someone who doesn’t work for the company—best of all, a lawyer—look at the contract agreement if you do not understand it: “If the company won’t let do that, then they’re predators, so just walk away.”
“[Non-compete clauses] were invented as a scalpel for very specific situations, in particular salespeople who would walk away with lists of clients and customers and try to compete against their employers in a very small geographic area,” suggested attorney Michele Grant, “but now they’re being used as a bludgeon in all different kinds of sectors of the environment, and it’s expanded in a way that is not fair to employees.”
While it’s true that some states, such as California, have laws preventing the enforcement of non-compete clauses, that doesn’t mean a company won’t still take a former employee or contractor to court. And since companies have the resources to hire expensive lawyers and spend more time in legal quagmires, negotiating ahead of time is the best way to protect yourself from signing an agreement that could harm your ability to work.
“Think of the worst case scenario: you start working for an organization and you find out after just a few weeks that it’s not very good fit, but you signed away your right to work for a year or two afterwards,” Grant said, pointing out that, even if agreements aren’t ultimately enforceable, getting sued is stressful, expensive, and time-consuming.
Even if a company doesn’t enforce its non-compete clause, signing one can still affect your behavior. “There’s sociological studies on the practices,” said Orly Lobel, a professor at the University of San Diego and author of Talent Wants to Be Free, “A lot of people think it won’t matter but it affects their behavior. They may lay low when they join a new workplace and sever their connections with previous work colleagues and don’t show up to professional associations and conferences. That in itself is a big cost.”
Having a non-compete clause in your contract may make you less likely to leave a job you’re unhappy with, or even to strike out on your own (if you have entrepreneurial inclinations).
Unfortunately, while some companies are happy to waive the non-compete clause in their contracts, others are unwilling to negotiate. In some cases, you’ll have to choose between signing the boilerplate contract or trying to find another company to work for.
In other cases, companies are okay with striking the non-compete clause, or at least agreeing to make the terms more specific. Just make sure you are clear on the risks before deciding whether or not to sign the dotted line.