Non-Compete Contracts 101: Occupational Blacklist?

More business owners are requiring their new employees to sign non-compete contracts. But how do you protect yourself from signing away your rights?

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As a designer, you’ve probably been there: you’ve made it through three rounds of interviews, perfected your resume, and you’ve finally been selected. You’re excited as the business owner offers you the position. Then it happens: they slide a stack of papers so thick it could pass for an 8th Harry Potter novel across the table. And as you position your pen to sign, you see the term “Non-Compete Contract”.

What are Non-Compete Contracts?

In normal-people terms, a non-compete contract is a legal document banning employees from working within a location or for competitors for a specified amount of time after they leave a business. Is this just protecting their company? Or is it occupational blacklisting?

Once an employee signs off on a non-compete, they are restricted from several things: Location, job function, and timeframe. If the employee leaves the company, they are still legally bound to the businesses terms and therefor unable to work for companies in the field, within a specified radius, hold the same job title… or all three.

Seem unfair to ban a former employee from having a job? Some businesses even enforce these agreements for employees that they laid off! But non-competes are becoming the norm for many careers and the list is growing. While they are most common in design-based fields, they are now encompassing everything from sales positions to hair stylists.

Here’s a few of the top factors they normally focus on: distance, timeframe, and job function.

Distance should play a very important factor in decision making surrounding non-compete contracts. Employers have the right to limit or completely ban a former employee from working within a set radius of their business. The goal is essentially to limit competition by being the only business of the type in the area. While it may seem reasonable to not be allowed to open up a shop right next door (free market be damned), distance contracts can range from 1-50 mile radi! Keep this in mind: would you want to be forced to move cities or maybe even states because of a former business? If you moved to New York City for a career, would you really want to be blacklisted from ever working in the city again?

Timeframe is another key player. While most employers don’t have the authority to block you from working for an extended period of time or forever, many can ban you from working for on average a few months to a few years. For many positions, an employee can’t afford a gaping hole on their resume or to put their career on hold for that long.

Job function is often used in non-competes. This states that the former employee cannot hold a position with the same job title. This means you could basically work for a business in the same industry, but under a different title. This is where the waters get murky. Many times, companies use a generic contract that tends to have a lot of room for finessing. You may be able to have your new employer change your title slightly so it’s not the same, such as instead of “graphic designer” you could go with “communication designer”. However, it’s possible for employers to close these loopholes. If they do it correctly, you may be stuck working in the industry you want, but in a lesser position with no room for growth.

How about an example?

This is our friend Jesse. Jesse is new to the job market. He has a few degrees and internship experience in graphic design and is looking for a position in advertising. He found a decent job for a print shop as an entry-level graphic designer. It doesn’t offer ideal benefits or pay, but it will be valuable resume building and hopefully he can grow with the company. However, they require a non-compete contract. As stated, if Jesse leaves the job or is fired, he is not allowed to work for any other print shop within ten miles of the shop for five years.

What would you do in Jesse’s position?

Protecting Business or Monopolizing Advancement?

Many states are fighting to ban non-compete agreements altogether and workers are backing them. The age-old argument employers love to use is that non-competes protect their trade secrets from leaking to the competition or buffer former employees from stealing clientele. While this may be true, there is one very important factor that is overlooked - the worker. When someone enters the workforce, they are doing so in hopes to grow their career.

Imagine working your way up in a company, gaining experience and knowledge, but find a position at another company. This job might offer you more responsibility or room for growth, be better aligned with your future goals, or have better benefits and pay. But if you signed this agreement, you sign away any right to explore these options. These laws allow employers to physically hold their employees to possibly dead-end, under-compensated careers.

Let’s visit Jesse at the print shop, where he’s been for about a year. He recently had a great interview with another print shop. They think his designs are great and he has great leadership skills. They would like to offer him a Design Manager position. This would come with a considerable pay raise and better health insurance. Within a few years, he might even have the experience to be a Director. Jesse would love to be in more of a leadership role, but due to the contract he signed with his current shop, he cannot take the position. Due to his contract, he I banned from working for any design shop for five years. This opportunity almost defiantly won’t be there in five years. Essentially, Jesse unable to advance his career by the choice of an employer.

Protect Your Rights

It sounds intimidating, and it is. The number of career opportunities that require a signature is growing. But workers are getting more vigilant and you can protect yourself with these steps:

Read Before You Agree

Like the Devil himself (not that we’re calling your boss Satan or anything) employers often try to trick new hires into signing without consent. Rarely do they take the time to explain what a non-compete contract is or what their terms entail. Too often do they slip the form in with the stack of paperwork including background checks, resident forms, and tax documents.

The solution: READ EVERYTHING! Don’t let yourself be rushed. Ask to take the paper home, or have them email it in advance. You can even have your lawyer, lawyer friend, Law and Order buff, fellow colleague, Poli-sci professor, mom or as many others as possible review the document with you. If it doesn’t make sense to you or people you trust, it’s time to start asking questions.

ASK QUESTIONS! Anything that concerns you should be addressed, in writing. Paper trails are necessary for fighting contracts in court - which sadly many non-competes can end in. If the business refuses to answer questions or put anything in writing, run in the other direction as fast as you can.

NEVER BELIEVE WORD OF MOUTH. If the employer says anything along the lines of “well it’s not as bad as it seems” or “it really means this...” ask for it in writing! Verbal contract changes are not legally binding. Protect yourself first and the employers ego later. Nobody should ever get offended over someone’s right to transparency.

THERE’S NO SUCH THING AS “GOOD TERMS”. Some business owners may try to negotiate that if you leave on “good terms” they will rip up the non-compete contract. The truth is everyone’s idea of good terms is different. While you might think leaving politely with an email resignation is fine, the employer might not. While they might require a two weeks notice, you might not be able to fulfill that. “Good terms” is not legal grounds for termination of an agreement. Essentially, this is saying that your resignation is contingent on what the business owner decides as satisfactory. They are giving themselves the right to punish you. So never believe them, they probably never will rip up the contract.

Know Your States Laws

There is no clear cut answer to how to know the best way to protect yourself. Some states however, have done part of the work for you! There is currently no federal restriction on non-competes. Each state has the option to make their own law around the details. Some states have completely banned non-competes all together. Others have no restrictions at all.

Most states fall in between. They may chose to have limitation on the industries, length, or or other details of the contracts. Some states have banned non-competes on certain job titles such as broadcasters, physicians, or cosmetologist. Others set terms that limit the contracts to not surpass a number of months or years. Finally, some have banned contracts on employees making less that a certain salary. In my opinion, unless your company wants to make it truly worth your while, there is no reason to set such drastic measures for a job that is well under a comfortable pay.

Let’s revisit Jesse. Say he works in California, where they have banned all non-compete contracts. Even if he has a previous contract before the law went into effect, he has the freedom to work wherever he chooses when he leaves. If he works in Oregon, a non-compete contract would only be enforceable if his salary exceeds that of the average median income of a family of four in the state. If he works in Pennsylvania, his employer is allowed to set any terms they see fit without any limits from the government.

It sounds confusing, but using an online tool to help you research your states laws will help you better understand your rights as an employee.

Consider Your Future

Non-compete contracts have only one purpose - to protect the employer. So you might as well arm yourself with ad many tools and knowledge that you can do that you are an informed employee. Now that you’ve researched your states laws and understand your rights, it’s time to mitigate the risk and organize your goals.

Take some time before agreeing to anything to consider your future. If a potential employer is requesting an unreasonable condition without considering how it effects you, it shows a glimpse into how they probably treat their staff. You definitely don’t want to be stuck in a hostile work environment that does not put their employees first and take care of their needs. Steer clear of these types of employers.

Take into consideration your short and long term goals. Where do you see yourself with the company? Is it somewhere you’ve always dreamed of working? Is there room to grow and a promise of advancement within their business? If signs point to yes, and you see a future with them, then the terms and conditions may be outweighed. However, you don’t want to put yourself in a position where you’re stuck at a dead end job.

Finally, you know when a job is temporary. If you have plans to move or switch industries, a condition such as distance or title might not effect your life as much as some. The good thing is, you never are required to disclose this information to an employer. If you’re planning to keep a position for a few months or years, don’t worry about signing that paper. Just keep in mind that plans can change, and it’s good to still consider all possibilities before making the commitment.

Say that Jesse has a position as an administrative assistant for a car dealership. His long term goal is to be in marketing and design and never plans on working in the automotive industry. Signing the contract limiting him from doing that exact job again won’t effect his life plans much at all. Subsequently, if the position is in Oklahoma, but once his lease is up he plans to move to Miami with his fiancé, the contract banning him from working within 20 miles will not harm him in the long run.

Negotiate

Just like any other terms, non-compete contract are totally negotiable! It may seem intimidating to ask for direct edits to the contract, but there are ways to politely and eloquently get what you deserve. Of course you can request direct changes to the contract. Most employers will most likely deny these changes, and your goal should be trying to get out of the contract, not edit it. Try bartering first.

Many business owners claim that the reason they have a non-compete is to prevent the former employee from spreading trade secrets. Offer to sign a non-disclosure agreement instead. These will prevent you from speaking negatively or offering private company business to the public or other companies. They have there own issues but will only censor speech instead of ability to work.

Request trial period. Some states are opting for laws that require businesses to request non-competes only from existing employees. They are not allowed to make someone sign a contract before they are hired. Even if this doesn’t pertain to your state, you can still suggest a trial period before you agree to anything. This gives you a few months to see if it is a good fit before committing. Many businesses have a grace period before benefits such as insurance are available anyway, so a trial period that benefits you is not too far of a stretch.

If a potential employer claims that they are using a non-compete to prevent you from stealing away clients, meet them halfway. It is a great fear of businesses that happens quite frequently. An employee will resign but take the list of clients to their next job. While stealing contacts directly from a business is indeed wrong, agreeing to many other terms is not a trade off. Ask to have the company draft a document to sign away right to former and current contacts. That way they have the protection from this issue, while you protect your other rights.

Fight For Your Rights

Remember as an employee, your rights are often overlooked by businesses. They have one goal - to protect themselves and the company they built. You also have that right. Your talents and work are not something that any employer should have the power to take away from you.

The law is, sometimes, on your side. Say you were unaware of what you were signing. They give you so many papers and don’t explain what any of them mean. A lot of the time they try to rush you into a commitment right then and there. Take a step back to breathe. Let them know that you are going to take the paperwork gone to review and you’ll bring the signed documents back tomorrow. Even if you need to make an excuse to make a quick exit is fine... I mean hey those last minute dentist appointments do have a tendency to slip the mind *wink wink*. Then have anyone: your lawyer, your old roommate in law school, a parent, honestly any other set of eyes can have a good look at it. Sometimes a third party will notice things you didn’t.

But hindsight is 20/20. If you find yourself stuck in this situation, there’s still hope to get out of it. If your contract is unreasonable, a judge may find that it is unjustified and therefore void. You have every right to seek the aid of lawyers and court if you feel you’ve been taken advantage of. Sometimes businesses see that they are being served and agree to some sort of mutual understanding instead of bothering with legal action. It’s a situation that isn’t guaranteed and is a hassle to deal with, but if it a road you want to take you may.

Hopefully these tips and insight prepare you for protecting your professional self before it gets to that point. Have you ever dealt with a non-compete contract? I know I have my own cautionary tales from my experience. If you have any helpful stories or tips, share them below!

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