Adapted from “Negotiating Noncompete Agreements,” first
published in the May 2011 issue of Negotiation.
Employers sometimes ask potential employees to agree not
to work for their competitors in the future. Don’t assume such requests are
nonnegotiable.
In the fall of 2010, journalist Christopher Flores was
looking for a job in Chicago. As he recounts in a February article in the
Chicago Reader, he came across listings for staff writer positions for local
online coupon company Groupon. Intrigued by the witty style in which Groupon’s
daily deals are described, Flores sent in a writing sample and was invited to
attend a seminar called “Groupon Academy,” where he and about 30 other
prospective employees would be educated about the company and given a chance to
write a freelance Groupon ad.
To attend the seminar, however, Flores was told he would
need to sign a freelancer contract that included a clause barring him from
working for any of Groupon’s competitors “in any capacity” for the next two
years. Flores was unwilling to swear off future job prospects for what might
amount to only one day of work. Without a signed contract, a Groupon recruiter
told him that he could not attend the seminar. As of January 2011, Groupon has
stopped asking job applicants to sign a noncompete agreement, though a company
spokesperson told Flores that the decision could be reversed.
To protect their proprietary information, companies often
ask prospective employees to sign noncompete agreements that bar them from
working for competitors for a certain amount of time and sometimes in a
specific geographical region. Typically, however, such requests are made only
after a job offer has been extended.
Flores’s experience with Groupon underscores the fact
that noncompete agreements of all types abound in the job marketplace—and, in
many cases, you should negotiate before signing on the dotted line.
The basics of
noncompete agreements
Employers draft noncompete agreements to limit turnover
and protect client lists and other proprietary information. Groupon may have
been interested in guarding the distinctive, quirky voice of its ads; arguably,
the company could spend time and money training writers who then take their new
skills to competitors. And a Groupon recruiting manager told Flores that its
writers have access to “sensitive financial and sales records” that need to be
guarded.
In most cases, companies require new hires to sign
noncompete agreements as part of an employment contract. Sometimes, however,
employers include noncompete clauses in separation agreements with employees.
Two recent examples from the world of television recently made headlines. As
part of his $32.5 million severance package with NBC, talk show host Conan
O’Brien agreed in early 2010 not to launch a new television show for nine
months. A year later, upon his departure from NBC Universal, MSNBC personality
Keith Olbermann negotiated a $7 million separation agreement that prohibited
him from working on other major TV networks for several months. Soon after,
Olbermann signed on to anchor a show on Current TV, a low-profile network not
listed in his noncompete agreement.
In both deals, the TV stars agreed not to bad-mouth their
former employers and were prohibited from giving interviews for a set period of
time (in O’Brien’s case, five months; see the sidebar “A Comedian’s Gag Order”
on the next page for more of this story). Olbermann also agreed not to discuss
his deal publicly, adding intrigue to his on-air announcement of his departure
until the details were leaked to the media.
Is a noncompete
agreement really necessary?
Employers have legitimate reasons for asking employees to
sign noncompete agreements. But as a prospective employee, you also have
compelling motives to negotiate an employment contract that won’t put you in a
straitjacket if you are laid off or find the job is not a good fit.
If an employer asks you to sign a noncompete agreement,
consult with an employment attorney in your area. The amount you’ll spend on
legal fees pales in comparison to what you’d later spend to contest a
noncompete agreement in court or defend yourself against a lawsuit alleging a breach
of a noncompete, writes Tara Weiss in an article for Forbes.com.
Your attorney can help to determine whether your
employer’s noncompete agreement is lawful and fair. An employer that asks you
to sign an agreement before even offering you a full-time job, as Groupon did,
may not be in compliance with the law, for instance. Moreover, noncompete
agreements are restricted or prohibited entirely in a few U.S. states,
including California. If there is a problem with the agreement, bring it to
your potential employer’s attention.
How can you avoid signing a noncompete agreement
altogether? Explain your concerns, such as the fear of being unemployable in
your field in the event of unforeseen layoffs, to the hiring manager. Ask for
an explanation of the company’s interests in having you sign a noncompete
agreement. If the company is concerned about protecting trade secrets, it might
agree to replace a noncompete clause with a beefed-up nondisclosure clause that
would prevent you from taking research with you. If the noncompete is meant to
keep you from poaching clients, a nonsolicitation agreement that prevents you
from pursuing key clients might do the trick, employment attorney Mark J.
Girouard told Forbes.com.
What if the company won’t explain its interests or
refuses to budge on the issue? This may be a sign that you should look for a
more flexible employer.
What’s negotiable?
Other key terms of a nondisclosure agreement may be open
to negotiation, especially if the employer uses the same boilerplate language
in every contract. Groupon’s noncompete agreement prohibited job applicants
from working for its “competitors,” a term the company didn’t define, Flores
writes in the Chicago Reader. It was unclear whether Groupon narrowly viewed
its competitors to be other online coupon companies or if it also included news
markets that run coupon promotions on its list of forbidden employers.
If a company uses vague contract language, insist on
greater clarity. Then, if necessary, negotiate to expand your future employment
options.
When a company is concerned about losing you to local
competition, the agreement ideally should stipulate the geographic region in
which you are barred from working for competitors.
As an example, hair salons sometimes ask stylists to sign
noncompete agreements that would prevent them from working for other salons in
the same town for a certain period of time.
When geography is an issue, try to negotiate as small a
region as possible.
The length of time stipulated by a noncompete agreement
is another critical variable. Would you be barred from working for a competitor
for six months after separating from an employer? For one year? Two years? You
should be able to negotiate a limit on the amount of time you’d have to wait to
work for desirable employers, especially if the company has set a timeline
arbitrarily.
Finally, you might follow Olbermann and O’Brien’s lead by
using a noncompete agreement as leverage on another issue (such as a higher
salary or, in the case of a separation agreement, a bigger severance payment).
If you would be walking away with a comfortable financial cushion, the prospect
of being off the market for a set amount of time might become a blessing rather
than a curse.
Employers often have sound reasons for requiring new
employees to commit to noncompete agreements. Before you sign on the dotted
line, make sure you understand this rationale and have negotiated a contract
that balances both sides’ interests.
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