Day one, hour one at your new job and you find in the stack of onboarding paperwork a “Covenant Not to Compete” or a “Restrictive Covenant”. Also known as a non-compete. What is it? Why do they want you to sign it? And what options do you have?
What is a Non-Compete?
A non-compete agreement, also known as a Covenant Not to Compete or Restrictive Covenant, is a contract between an employee and employer which restricts the ability of the employee to engage in business which competes with the employer within a certain geographic region for a certain period of time. By signing it, you agree that you will not compete with your employer by engaging in any business of similar nature in any capacity (employee, contractor, owner, investor, etc.).
Why do they want you to sign it?
Companies use non-competes to protect themselves against terminated employees who might begin working for a competitor or start their own business and gain a competitive advantage by exploiting confidential information about their operations, trade secrets, or sensitive information such as customer/client lists, business practices, upcoming products, or marketing plans.
What options do you have?
Non-compete agreements are legal in many, but not all, states. Signing a non-compete agreement cannot be required by employers; however, your employer may terminate or choose not to hire you if you refuse to sign. Courts generally do not approve of non-compete agreements, and consider a number of factors in determining the reasonableness if there is a legal dispute concerning one. The legal system puts values a person’s right to earn a living; therefore, even states that allow these agreements impose some limits on them. It is a good idea to review your state’s applicable laws prior to signing a non-compete. If you are particularly concerned, consider having a lawyer review it and advise you accordingly.
If you find yourself faced with signing a non-compete agreement consider negotiating with the employer to limit it to only what is necessary to protect them (geographic scope, duration, industry role/sector). You can also ask for the agreement to stipulate a severance package in the event that you are involuntarily terminated.
Learn more about accepting a job offer from this article.