How enforceable are "non-compete" clauses in contracts?

Question

Every "worker" I speak to says they are not worth the paper they are written on, however every company I work for, has a clause in the contract that states anywhere between 3-6 months prohibition of working for a competitive company.

Also, I've seen people jump ship to a competitor and the clause never enforced (that I'm aware of).

Answer 1

I have seen the clause enforced more than once. I think it has a lot to do with the industry you are in, and also with how the courts in your area look at stuff like that. The courts in my area are very conservative, and extremely pro-industry and pro-employer, and I think that has a lot to do with it.

One of the guys I went to high school with was actually taken to court, and the court ruled that he had violated the clause. It ended up not mattering much, as the company which sued him simply wanted him to either stop working for the competition, or pay a hefty fine if he kept the job. By the time the court ruled on it, he had already been offered a different job with a state agency. The company which had sued him didn't care one fig at that point, because 90% of the contracts they do are bids for the very agency he went to work for. The company was an engineering firm, and he is not an engineer, but rather a planner, and the company does most of their business with our state Department of Transportation, which is, ironically, who he went to work for. They just didn't want him working for another engineering firm which would be bidding on the same state contracts they bid on. The fine, however, had he been required to pay it, was equivalent to 1/2 of his yearly salary in his old position. Since it was his first job out of college, that only amounted to $17K, but that was a lot of money to him, since he had two little kids and a brand-spanking new mortgage. He told me he found out the hard way that it's bad news to jump ship if you are involved in any type of engineering. Another person I know who had the clause enforced was also in the engineering field--he ended up having to quit his new job. The new employer was very nice, and after the six-month non-compete period was over with, they hired him again, despite the fact that he had been working as a manager at a pizza delivery chain.

There are two other areas where I have seen it enforced. One is in sales positions. My husband works for a company which has a non-compete clause, and they have had their legal department get involved when people moved to other sales positions, but only when the sales position was with a company which did the same type of sales. Since they really fill a very special niche in sales, there aren't a lot of places you could go where you would be competing. He did have one friend who got a letter from the legal department, but when he sent them the information on what kind of sales he was doing at his new job, the issue was dropped because there is no way on the planet it could possibly affect my husband's employer.

The other area where I have seen it enforced is in research. Again, it happened to someone I know from high school. He was working for a biomedical research company, logging countless hours at a lab bench for less than fair pay. He got an offer from another company to do roughly the same type of work, only for almost twice the pay. Since he had known people who had left and gone to other research companies, he thought he'd take the risk. The problem was that he had very specialized knowledge about the type of research the company was doing, and the results of their research. He could even, if asked, have replicated some of the experiments for the other company. (He would never, ever do that, however--he made it clear to the new company that he would not be sharing anything he had learned at his previous job, and the guy is possibly the straightest arrow I have ever known in my life.) He got blasted by the court, as well. (And here's an irony, he and the first guy I mentioned were best friends in high school!) His problem was resolved by his attorney offering the old research firm a compromise. Basically, his attorney pointed out that he wasn't being paid fairly for the industry, and that that was why he had moved on. His attorney's proposal was that they either hire him back for better pay, or release him from the non-compete clause. It was a total bluff on the part of the attorney, since the court had already ruled and he had appealed the ruling to the next higher court. However, his gambit paid off. My friend told me his attorney knew it would because, and here's the important part, he was willing to fight them on it. His attorney reasoned, quite accurately, that it would be cheaper for the old company to hire him back at a better salary than to be buried in paperwork as he continued to appeal every time he lost the case. Their lawyers make a lot more than a young researcher, so it was just a matter of taking a look at the bottom line and realizing which one was cheaper. My friend took up his old job at better pay, and the only real fallout was that he had to go back to a company which didn't have casual Fridays.

In all honesty, I can see why some companies have them in some industries. In the past, and still in the present, it's very common for people to jump ship and take half the business with them. That is, really, quite unfair to a company, and that's why they have those clauses in contracts. Since I know people who have had the courts give them the nasty finger, I would advise you to be very cautious if you do it. Know that you could get dinged, and be prepared for that eventuality, but keep in mind that it often isn't going to be really vital to a company's health to follow through on something like that.

May I ask why you put this in elections? I was just wondering, because if you are considering switching political parties, that's a whole different game. Where I come from, Conservatives come and egg your house and put toilet paper all over your trees and shrubs if you become a Liberal. If you move the other way, your old Liberal friends come and smoke pot on your front lawn and make the neighbors gasp. It's very risky to jump party affiliation around here!

Answer 2

Like every other clause in a contract, it's as enforceable as the ammount of money that company is willing to spend on lawsuits. Except for clauses that violate State or Federal Law. It's pretty common to include illegal clauses in a contract on the principle that people won;t know the law.

If you are making a lateral move with no proprietary information transferred, an anti-competetive clause isn't very enforceable at all. Courts are understandably reluctant to prevent people from working.

If you take a list of customers and an unpatented process or an unsold ad campaign with you, the Company will move to enforce and might actually have a case.

If you received compensation to stay out of a certain field for a period of time, common among Engineers--than, of course, you should do something else for a while.

Some States and Municipalities have laws which void anti-competetive clauses if termination was part of a reduction in force.

Answer 3

It depends, in part, on the state as there are slight differences in contract law from state to state.

Having said that, the general black letter law statement is that covenants to not compete are "disfavored" in the law. In practical terms, it means that the company will have to justify why the contract clause is both necessary and reasonable. It is most likely to be enforced where your job involves some type of information that the company believes gives it a competitive advantage (which can range from a client list to a secret formula for making a product) and your new job will put you in a situation where you will be directly competing with your old company (especially in a situation where you can use that information to your new company's benefit). Even then, the court will try to limit the geographical area and the time period covered by the contract.

Generally speaking, the clause is there to discourage jumping ship to a competitor and is only enforced when the company believes that they could get it enforced and the potential impact of waiving the clause justifies the litigation expenses.

Answer 4

Non Compete Clause

Answer 5

They are not as enforceable as they read because we do not have or condone slavery in the United States. It's an easy challenge for a half way good attorney that knows how to read the Constitution of the United States.

Answer 6

They ARE enforceable if you have Trade Secret info that you will take to the new company. ALSO, they can sue the pants off you and make your life hell ... even if they don't win the case, is it worth being drug thru the mud..
My recommendation is be careful ... probably not worth it in the long run.

Answer 7

You hear a lot about these things, but i've never actually heard of anyone that's been sued because of it.

In most cases the company you leave will just assume they are better off without you. I guess if you deliberately stole sensitive material to give to a competitor then they might think seriously about taking you to court over it, but i doubt it.

Answer 8

They can sue you and the competitor. I knew of one salesman who lost 6 months of commissions and the company he went to work for had to pay a percentage on everything he sold.

Answer 9

If you do a search, you can find numerous examples of lawsuits based on violation of a non-compete clause that made the news.

Answer 10

If you sign a contract, you sign a contract.
You're bound to abide by it.
Now... if they choose not to enforce it? Oh well.
Most times they don't enforce it unless they feel the person leaving may have sensitive information that will ruin a competitive edge that they perceive.
If you don't have that info... you're expendable.