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After four years of working for a national lawn care company, Jack Deland believes he knows everything about keeping a lawn green. He's also pretty sure about what it would take to make green stuff grow in his wallet if he could start his own lawn care business. He's already saved what little "seed" money he needs to get started. And customers are eager to hire him.
There's just one problem troubling Jack as he sits in his lawyer's office: Jack once signed a contract with his former employer that now forbids him from working in a competing lawn care business.
Who would sign such an agreement? Jack is no different from many people encumbered by a non-compete agreement after leaving a job. Actually, most companies don't have any difficulty with getting their employees to sign these agreements. It often happens at a time when leaving the company is the furthest thing from an employee's mind, such as during the hiring stage or as part of an annual review when the employee is getting a pay raise.
What do these agreements do? A typical non-compete agreement forbids an employee from working in a competing business after leaving the company. The agreement usually specifies a period of time after the employee leaves, and a geographic area in which the employee must refrain from competing. It may include other limitations. Jack's agreement prohibits him from working in any competing lawn care business within a 100-mile radius of his former employer's office for a period of one year.
I signed one of these, what happens if I ignore it? First, you may create ill will between you and your former employer. Depending on the type of business you are in, you may need to be on good terms. Your employer may even be a prospective client if, for example, you work as a consultant.
More seriously, the employer could file a lawsuit against you leaving you liable for money damages, attorney fees and court costs if you lose the suit. Your employer could also get an injunction from the court ordering you to stop competing immediately. In that case, the injunction could actually forbid you from competing for a longer period than your original agreement with the employer. And the worst time to learn that your employer is serious about your non-compete agreement is after you have invested time and money in starting a business.
So what can I do? Read the agreement carefully. You may find you can "live with it" by:
In Jack's case, these options won't help. Starting his lawn care company will put him in direct competition with his former employer, his customer base is within a proscribed area, and he can't afford to wait until the agreement expires. If you're in a similar situation, you may still be able to do something about it.
Because non-compete agreements restrict a person's ability to earn a living, many states have taken steps to discourage them. Several state legislatures, including Florida, have recently changed their laws to make it more difficult to enforce the agreements. Courts have also been known to void, or to re-write the terms of, unreasonable ones. Thus, depending on the laws and court decisions in your state, it may be easier to challenge a non-compete agreement than your average contract. Here are some arguments that may work:
If you believe that your non-compete agreement will hurt your attempts to start a business, consulting an attorney with employment law experience in your state can be a good idea. Your attorney can tell you if these arguments are valid in your state and may suggest other arguments. He or she may also be able to help you void the agreement or to negotiate new terms that you can live with. Remember that a consultation costs much less than defending a lawsuit.
Given the high costs associated with going to court, most companies actually prefer a workable compromise to an all-out court battle. The key is to achieve that compromise before your employer finds out about competitive activities from a third party--such as a customer you've taken away--and calls in its own lawyers.
This discussion has focused on helping people to understand, and possibly to change, non-compete agreements they may have signed with a former employer. As a business owner, however, you may be interested in requesting such agreements from your own employees or in making sure the ones you use are air-tight. If so, information on non-compete agreements in the Business Owner's Toolkit can help you.