The job market over the last 12 months has been hot. Darden Alumni Career Services (ACS) has seen an unprecedented number of alumni looking for guidance on negotiating compensation packages with new employers. As part of the offer terms, many employers ask new hires to sign a noncompete agreement. In an employment era where it is common to change jobs every few years, signing a noncompete can have big implications on your next career move. To glean insights on how to navigate noncompetes, I spoke with David Tayman (JD/MBA ’99), an experienced business attorney with Tayman Lane Chaverri LLP in Washington, D.C., and Laura Redden (MBA ’15), an executive recruiter with Spencer Stuart in Seattle, Washington.
It was clear in my conversations both with David and Laura that, like in most areas of life, when it comes to noncompetes, an ounce of prevention is worth a pound of cure. Be extremely careful about what you sign today to prevent serious headaches down the road.
Before You Sign
- Read it over and make sure you understand it.
David: Noncompetes are written in English, but they are not always all that understandable, even to very sophisticated people. The noncompete is a business version of the prenuptial agreement. They are presented in good times and only come into play in bad times. The starting point should be to just read the language and think about whether you can comply with the noncompete as written. If you have a lot of questions about what the noncompete language means, or whether you will be able to live with its terms, that should raise red flags. Slow down and maybe get some input on what the language really means and the potential ramifications.
- If there is anything you don’t understand, ask questions.
Laura: I would always want to understand the language before signing a noncompete. HR should be able to tell you what the language means. Ask, “When you say I can’t go to competitors, what does that mean? In this city? All over the country? How long does it apply?” Even if the employer won’t change anything, at least you know what you’re getting yourself into.
- When in doubt, consult an attorney.
David: Consult an attorney when there is a restriction that you think is going to constrain what you might want to do after you leave this particular employment. It’s also helpful to have somebody who can stop and say, “Well, here’s why you care about that paragraph.” You should have an attorney look at something at the front of the relationship when everything is happy. That is the time when it is easiest to change or get clarity on something, and after the a job separation, there might be a fight to get out of a restriction or get a benefit that could have been negotiated and dealt with earlier.
Laura: My sense from working with clients, the employers, is if they have a noncompete that they require of their employees and particularly their leadership, it is very rare that they would eliminate it. However, there may be pieces that are negotiable, like severance. If you can’t work in the same industry where you spent two or three decades of your career for 12 months after leaving this role, maybe you negotiate closer to 12 than six months of severance.
If You Are Searching for Your Next Job and Are Locked Into a Noncompete
- Don’t be surprised if it is a dealbreaker with competitors.
Laura: Noncompetes are one of the things we ask about first. Depending on location, they are more or less enforceable. However, at the executive level, we might talk about a potential candidate who has a noncompete but it is very rare that clients would actually engage with them.
- Consult an attorney.
David: There can be ways out of noncompetes. It’s by no means assured, but there are a lot of variances on a state-by-state basis in terms of where the employment is and the law that governs the agreement, and whether the employment agreement is an actual employment agreement or a policy and a manual. Basically, the law allows employers to protect themselves with noncompetes but it balances that against a requirement that restrictions be reasonable – that they protect the employer’s interest, what they’ve built over time, and the employer’s goodwill, but also the employee’s right as a free human being to make a living. The law is going to try and make it so that somebody is not restricted from being able to make a living in their chosen profession and in their chosen geography, but there are exceptions even to this which is why it is so important to fully consider the ramifications of noncompetes before they are signed.
- Consider alternative and tangential industries.
Laura: I spend my time in the technology/software industry and had a telecom client last fall that wanted a leader from the software space because there are only three or four big telecom players and there may only be six or eight people who are qualified for that job, all with noncompetes. An employer finds talent other ways, like candidates from an adjacent space or some exposure to telecom at some point in their career, but they’re available now.
If You Need an Attorney
- Use your network.
David: I wouldn’t go the Yellow Pages, but I would tap into your network and ask people who have been down this road before for referrals. Ideally you want to find an attorney who has dealt with noncompetes before. A good business lawyer should either be that person or be able to connect you with that person.
- What to look for in an employment attorney.
David: Look for a business attorney who understands not only drafting contracts but fights over the terms of contracts. You want somebody who knows not just about writing a document but fighting over what the language is and has an understanding how a court or a mediator might interpret that language if you get into a dispute. Also, you should ask which side the attorney typically represents: employees or employers, and opt for a balance of the two. Having somebody who understands the kind of pressures both sides are under can help you cut through the noise, get to the zone of agreement and hopefully work something out that everybody can live with. If a reasonable settlement is not possible, you want someone who also has the skills to force the matter if need be.