Have you ever been asked by an employer to sign a noncompete agreement? If you have, you are not alone: Around 30 million U.S. workers have signed noncompetes, according to a 2016 report by the United States Treasury Department. That's 18% of the whole workforce.
Noncompete contracts — which are designed to bar you from accepting certain work opportunities after you leave your job — used to be reserved for employees in high-power positions, like corporate executives with access to key trade secrets. But in recent years, their use has expanded to the point where even low-wage Jimmy John's workers, temporary warehouse workers and journalists are being forced to sign contracts that severely restrict their ability to find work in the future.
What are the consequences? As more people are asked to sign noncompetes, these contracts are having a pernicious impact on the economy, employee motivation and innovation, a recent opinion piece in the New York Times argues. The Obama administration tried to push back against the growth of noncompetes and Congress introduced two different bills in 2016 to limit these contracts, but efforts to effect change at the federal level have since stalled.
This means if you're asked to sign a noncompete, you'll need to do some homework — and know whether or not the contract you're putting your name on is enforceable in your state. The bad news is, the majority of states do enforce noncompetes, although not necessarily in all situations.
The good news is there are "a number of states that are looking to change their laws, and they have been looking at a lot of abuses of noncompetes," as attorney Russell Beck told PBS. In the meantime, here is what you need to know — and how to protect yourself.
What happens if you sign a noncompete?
About 37% of workers who are asked to sign noncompetes are presented with these contracts only after they have already accepted a job offer, according to the Treasury. That's tough.
By that point, you probably won't be eager to walk away from the deal. Then again, if you do sign, you could be substantially limiting your career options going forward: Noncompetes "ban workers at a certain company from going to work for a competing employer within a certain period of time after leaving a job," as the Obama White House explained.
But what happens if you don't obey? "The employer may sue you and go to court seeking what is called an 'injunction' or restraining order to prevent you from violating your agreement," per nonprofit Workplace Fairness.
This would mean the court could order you not to work at a competing business in violation of your contract. Employers can also be awarded monetary damages — which means you'd have to pay them — if they can prove your actions caused them to lose profits.
Importantly, courts grant injunctions or monetary damages only if the noncompete is enforceable. Employers often rely on workers not knowing their rights and assuming they're bound by a noncompete, even when the courts ultimately wouldn't enforce the contract.
In California, for example, 19% of workers have signed noncompetes, according to the Treasury — a higher percentage than the national average, "despite the fact that, with limited exceptions, noncompetes are not enforced in that state."
What is your state's law on noncompetes?
Get ready to do a quick little dive into your state's rules. "Every state has its own noncompete law," Beck explained to PBS.
To find out the policies in your state, you can check out this 50-state reference guide from Seyfarth Shaw LLP or this Beck Reed Riden LLP guide for starters. You might also clear up questions with local authorities or employee advocates, like your state affiliate contacts at the National Employment Lawyers Association. Keep in mind that laws can change quickly.
Around 14 states were making moves to restrict or ban noncompetes in 2016, according to Beck, while three states were making it easier for employers to enforce noncompetes. As the Beck Reed guide shows, North Dakota and Oklahoma are the only states that don't currently allow noncompetes. In California, noncompetes are permitted only in very limited circumstances where there are actual trade secrets involved.
Most other states allow these contacts to be enforced in some or most circumstances — bad news, considering wages can be up to 10% lower in states that enforce noncompetes versus states that don't, according to the New York Times.
Your exact contract terms matter, too
Knowing your state laws is a good starting point, but you shouldn't assume a contract you signed will be enforceable just because your state generally enforces noncompetes.
Typically, when the court considers whether or not to enforce a noncompete, it will determine if the employer has a legitimate interest in protecting its business and whether the contract is so broad it basically stops you from making a living at all, according to Workplace Fairness.
Courts generally look at the length of the agreement, the geographic area where you're forbidden from competing and the kinds of work you're prohibited from doing to help make their decision. Courts may also consider whether your employer gave you anything extra — like more compensation or benefits — in exchange for signing the noncompete.
If the noncompete is really broad and you don't actually have any real secrets that could jeopardize your employer's interests — which is the case for around 76% of workers, according to the Treasury — there's a good chance the contract you signed won't be enforced, even if an employer decides to try. So don't let yourself get bullied; know your rights.
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