Non-Compete Clause

[nwb01]

My father has worked for a company (HVAC business) for 20 years, owned by his brother. The company is small about 10 employees. About a year ago his brother's Son and daughter bought the company and since then his brother passed away. These two have no experience running this or any other construction based business. The company is now in shambles on the brink of going out of business. The other day the employees, most of them having been there 15+ years were given a "Non-Compete Clause" to sign.

The clause states that they can not work for a competitor for 1 year in the area they are now working. This area is a small town (40K people) in the Northwest that has had a large construction boom. So basically if they sign, they are screwed. Needless to say, 4 of the guys including my Dad didn't sign. They were terminated on the spot. So much for a family business !!!

Does anybody have any experience with either side of Non-Compete Clauses ?? I am wondering how binding they are.

TIA

Nick

[Rob Boudrie]

Does anybody have any experience with either side of Non-Compete Clauses ?? I am wondering how binding they are.

This depends on a lot of factors, including the state in which you work, and how key a player you are in the company. There is no shortcut to finding a qualified atty in your state who knows this sort of thing.

Even if they are not enforceable, the mere threat of an action from the former can prevent a potential new employer from extending an offer to someone with a non-compete if there are other candidates for the job who do not bring any baggage.

[Jake Di Vita]

I believe that is called restriction of free trade, which if it is, is not binding.

To my knowledge.

[al503]

Enforceability, in general, will depend on several factors. How well is the agreement drafted. Who is considered to be a competitor? What is the 'area?' What are the consequences for violation of the agreement? Are there any state or local laws statutes that forbid these clauses for whatever reason?

Even if it is enforceable, practically speaking, will the company:

1. still be in business?

2. and if they are, will they have the resources to file a lawsuit?

3. and no offense to the employees but will the employees have assets to pay if a judgment is entered against them?

Edited January 5, 2010 by al503

[al503]

I believe that is called restriction of free trade, which if it is, is not binding.

To my knowledge.

Most states allow non-compete clauses as long as the geographical area and duration aren't too oppressive/unreasonable.

Info on what exactly is reasonable in terms of area and duration (and any other factors) should be solicited from a local attorney.

[al503]

Even if they are not enforceable, the mere threat of an action from the former can prevent a potential new employer from extending an offer to someone with a non-compete if there are other candidates for the job who do not bring any baggage.

While it probably wouldn't help, the agreement is between the company and the employee. The new employer would have nothing to worry about from the previous (besides possibly the employee quitting to avoid a civil suit between him/her and the previous employer.)

[bbbean]

Even if they are not enforceable, the mere threat of an action from the former can prevent a potential new employer from extending an offer to someone with a non-compete if there are other candidates for the job who do not bring any baggage.

While it probably wouldn't help, the agreement is between the company and the employee. The new employer would have nothing to worry about from the previous (besides possibly the employee quitting to avoid a civil suit between him/her and the previous employer.)

That would count as baggage. Who wants to hire, train, and break in a new employee, possibly investing in new equipment, advertising, or business expansion, only to have that employee leave within a few weeks/or months due to a lawsuit?

[al503]

Even if they are not enforceable, the mere threat of an action from the former can prevent a potential new employer from extending an offer to someone with a non-compete if there are other candidates for the job who do not bring any baggage.

While it probably wouldn't help, the agreement is between the company and the employee. The new employer would have nothing to worry about from the previous (besides possibly the employee quitting to avoid a civil suit between him/her and the previous employer.)

That would count as baggage. Who wants to hire, train, and break in a new employee, possibly investing in new equipment, advertising, or business expansion, only to have that employee leave within a few weeks/or months due to a lawsuit?

I was thinking by 'threat of action from the former' was a threat from the previous directly to the new employer something along the veins of 'I have a non compete with Bob. If you hire him, I'll sue you.'

If I was unclear, I agree with you completely on the baggage as noted above.

[Jadeslade]

Depends on how much someone is willing to spend to enforce it. They are exactly what Jake said, ultimately.

[murkish]

Even if they are not enforceable, the mere threat of an action from the former can prevent a potential new employer from extending an offer to someone with a non-compete if there are other candidates for the job who do not bring any baggage.

While it probably wouldn't help, the agreement is between the company and the employee. The new employer would have nothing to worry about from the previous (besides possibly the employee quitting to avoid a civil suit between him/her and the previous employer.)

That would count as baggage. Who wants to hire, train, and break in a new employee, possibly investing in new equipment, advertising, or business expansion, only to have that employee leave within a few weeks/or months due to a lawsuit?

I was thinking by 'threat of action from the former' was a threat from the previous directly to the new employer something along the veins of 'I have a non compete with Bob. If you hire him, I'll sue you.'

If I was unclear, I agree with you completely on the baggage as noted above.

I am not an attorney.

In Texas, I have seen or been involved in a few cases where tortious interference with a contract was claimed against the new employer. It is a pretty common claim here.

It looks to me like those who signed the non-compete can probably claim that they signed under duress. I cannot speak for your state, but the "sign the non-compete or you are fired" does not play very well here.

Jack

[BigDave]

I know that Ohio does allow non-complete contract language. The one I dealt with had a buy-out provision, stating that if the person did hire on permanently or continue to work for us through another firm that we had to basically buy out the contract.

My wife works under one in her state job. She can't go into the private sector for one year and work against the state in her area of expertise.

I don't care for them, but I see the point. If I had a significant time and skill-development investment in an employee, why let that investment go unrestricted to a competitor?

[al503]

In Texas, I have seen or been involved in a few cases where tortious interference with a contract was claimed against the new employer. It is a pretty common claim here.

Jack

Good point. Many states require a showing (besides all the other elements of the tort) the new employer actually induced the employee to come work for them. If Bob comes in and applies for a job on his own free will/absent active recruiting, TI usually doesn't hold up.

All of this complicates (translation: more billable hours) the issue, and while the former employer can certainly bring a suit given the facts provided, it doesn't sound like they're going to have a separate legal fund to do so. Even if they did, their attorney will probably remind them that many of the ex employees may be judgment proof anyway. You can meet/prove everything you need to but its not going to do any good if the defendant doesn't have anything to satisfy the judgment.

[SteveU]

Noncompete clauses are common in medical practices and are enforceable in most areas as long as they are reasonable in area and duration. However, they are signed at the time of employment, which makes the issue a matter of contract law.

If it is being given out to current employees, I am less sure, but my gut tells me that 1) there is no obligation to sign it but 2) the employer may terminate employees in some states without cause. If you're fired for not signing it, you need to prove that's why you were fired. The employer could say, "his services were no longer required."

I also am not a lawyer, but am very opinionated.

[twodownzero]

I really think it depends on how extensive the contract's provisions are and the relevant precedents in your area.

You're really better off talking to a local lawyer than asking here. Even our best speculations would likely be further from reality than any practitioner's opinion from your area.

I can think of reasons why they would or should be enforced, and other reasons why they wouldn't or shouldn't. I also don't think I'd expect too much litigation from a failing firm. If they're going out of business, I highly doubt they're going to spend their last dollar suing me. The monetary remedies if they did might prevent me from breeching, though.

In the end, it's the local details that will likely make the decision, so I'd really hesitate to say.

[nwb01]

Thanks for the insight guys !!

The State is Idaho, which is a right to work state. I am trying to persuade my Dad into talking to a lawyer but he is somewhat reluctant.

I will find out the exact wording in the clause later today, I maybe able to get a copy.

[twodownzero]

Right to work has no bearing on this. A non compete is a contract provision, not a statutory issue.

[Toolguy]

I think the non-compete is usually used to keep someone from starting a similar business as an owner, rather than who you work for

as an employee. At any rate, since your Dad didn't sign the agreement, he should start his own business doing that. By the time he

gets going good, the other place will be out of business anyway and the people working there now can move over and work for him.

After they go bankrupt, he can probably buy the assets for a fraction of new cost at auction.

Edited January 5, 2010 by Toolguy

[Flexmoney]

I think the non-compete is usually used to keep someone from starting a similar business as an owner, rather than who you work for

as an employee. At any rate, since your Dad didn't sign the agreement, he should start his own business doing that. By the time he

gets going good, the other place will be out of business anyway and the people working there now can move over and work for him.

After they go bankrupt, he can probably buy the assets for a fraction of new cost at auction.

+1

Why would he want to keep working for people that are going to run the current company down to the ground?

Fact. They just lost a major part of their work force, and invited them in as direct competition.

[davidwiz]

Right to Work has nothing to do with non-compete clauses. Two totally different things. You really really need to talk to an attorney in your state that has knowledge of non-complete clauses.

[chizzle]

Typically these must be reasonable, in that they can't prevent you from finding some job in your area. That being said, they can prevent you from dealing with former customers for a "reasonable" time (typically 12-18 months) if you've signed them.

[kaiserb]

I had a noncompete once in TX and it in no way met the legal requirement for noncompete and thus was invalid on its face. Each state has differing rules for employer to employee restrictions.

In Ohio for example

In Ohio, non-compete agreements (also called “non-competition agreements” and “covenants against competition”) are binding and legally enforceable to the extent reasonably necessary to protect the legitimate business and competitive interests of the employer.

If a non-compete term is challenged in court, it is possible to get the judge to declare that it either does not apply in a particular situation or must be modified or “equitably reformed” so it will be more in line with the specific business and competitive interests the employer seeks to protect. Often times, courts will find that a non-competition terms is too broad and will modify or reform the geographic scope or duration of the non-compete agreement or covenant. Courts generally will not alter any definition of what constitutes “competition” unless the definition in the non-compete agreement or covenant itself is too broad, vague, or ambiguous or it would be unconscionable or unreasonably restrictive on the former employee’s ability to make a living to apply the literal definition of “competition” that is included in the non-compete agreement or covenant.

I frequently receive calls from individuals when it is too late to address non-compete terms. The best time to consult an attorney over a non-compete agreement or covenant is before you sign it. Reasonable negotiation over such a term is possible, particularly for executives, senior-level managers, sales and marketing personnel, finance executives, and technical personnel and engineers. Usually, this negotiation leads to agreement over terms governing access, use, and ownership of trade secrets, inventions, and intellectual property, and the obligations to maintain the confidentiality of information the employer considers the most sensitive.

I also receive several calls each year from outraged executives and senior-level managers who want to know why their current or former employers believe they have the right to enforce a non-compete agreement or covenant even thought the employer never mentioned a non-compete term during pre-employment negotiations or in the offer letter.

It used to be in Ohio that a non-competition agreement or covenant against competition could not be enforced unless it was supported by a reciprocal promise made by the employer. So employers used to have to match the non-compete term with something of value given to the employee (e.g., additional compensation, a raise, a bonus, eligibility for an incentive compensation plan, additional vacation leave, etc.) unless the non-compete term was included in the original employment offer.

No more! Thanks to the ultra-conservative Republican-dominated Ohio state government – where Republicans have had a lock on all three branches of government for more than a decade – this has all changed. Apparently in its zeal to help Ohio become a more “business-friendly” state, the Ohio Supreme Court has held that when an employment relationship is “at-will ,” as most employment relationships in this state are, each day offers a new opportunity for either party to terminate the relationship or for the employer to propose a modification of the relationship, with or without cause and with or without notice. The Ohio Supreme Court reasons that the offer of “continued employment” is all the value the employer must give in suddenly insisting on the execution of a non-compete agreement or covenant where none existed before!

So even if you were enticed to relocate yourself and your family to embark on a new career or job by terms that did not originally call for you to sign a non-compete agreement or covenant, be aware that in Republican-dominated “business-friendly” Ohio, you and your family can have your lives turned upside down by an employer who decides to place onerous terms in front of you without notice or negotiation and simply insists on a take-it-or-leave-it basis that you sign it or exercise your own right as an “at-will” employee to quit your job on the spot, probably at the risk of becoming ineligible for unemployment compensation benefits. The moral of this story is that you should consult an employee rights lawyer as soon as your employer first brings up the idea of having you sing a non-compete agreement. If you wait until you want to leave your job for a better offer from a competitor, it might be too late. Contact us if you need an employment attorney in the Cleveland or Akron areas to help you with a non-competition agreement.

Edited January 5, 2010 by kaiserb

[CSEMARTIN]

I agree with davidwiz on this one.

I do know, in Iowa, in the medical field, if you sign a non-compete clause, it will hold up in court--as long as there isn't a demand or need for physicians in the community. In other words, the needs of the community are more important than the "clause".

You should get an attorney's advice on this one. None of us non-lawyer types really know enough to give any advice that your family should act on.

I can say that I would do what I needed to do. If push comes to shove, you can always duke it out later. What are you going to say in court? I've got a wife and kids to feed and these new family members running the show are threatening my livelihood. Also, with a big construction boom, you'd be needed in the community.

I don't see this non-compete being much more than toilet paper.

[salilus]

The noncompetes that i have signed in the past stated that I cannot work for a different employer and service any of my copmanies current clients for one year. i can quit and go to work for the guy next door in the same field, but if keeps me from jumping ship and taking clients with me.

[Rob Boudrie]

I was thinking by 'threat of action from the former' was a threat from the previous directly to the new employer something along the veins of 'I have a non compete with Bob. If you hire him, I'll sue you.'

I have seen this happen (with a former, now defunct, employer), in a case where there wasn't even a no-compete.

It consisted of my employer's attorney saying "You are taking too many of our people, if you keep it up, prepare for a suit".

The result was that the other company adopted a policy of not hiring any of my co-workers without a release from my employer.

[al503]

I have seen this happen (with a former, now defunct, employer), in a case where there wasn't even a no-compete.

It consisted of my employer's attorney saying "You are taking too many of our people, if you keep it up, prepare for a suit".

The result was that the other company adopted a policy of not hiring any of my co-workers without a release from my employer.

Not saying I don't believe you but I can't think of any legitimate legal cause of action unless they had some employment agreement and the other company was actively trying to recruit. I'm thinking that there may have been something else that they could have pursued besides the employees.