To Compete or Not To Compete: Week 2 in Levine-Piro Law’s Series on Employment Agreements

Just the title “non-compete” makes your skin crawl, doesn’t it? To go all Fox newsy, there’s something almost “un-American” about the word. Competition is in our blood. It’s part of what makes this country tick. But stay with me and I’ll show you how it – kind of sort of – makes sense.

A non-compete agreement (a.k.a. non-competition agreement or covenant not to compete) prohibits you from going to work for a competitor of your employer within a specified time period and within a specified geographic region. Non-competes are typically upheld by courts if reasonable in length and geographic scope.

First, a little history, should you ever wind up on Jeopardy. Laws allowing non-competes trace their origins all the way back to 1711, to a British court case called Mitchel v. Reynolds, a fight between two bakers. I personally would have liked to have tasted the fruits of that fight. Anyway, Reynolds rented his bakeshop to Mitchel; Reynolds also promised that he would not open another bakery in the same town. See that – that’s a non-competition agreement.

Guess what happened? You got it. Reynolds, that backstabbing baker, went back on his word. Mitchel sued. The Court upheld their agreement and found that the agreement not to compete was a “reasonable” restraint on trade necessary for Mitchel’s business to thrive. If Reynolds were allowed to open up a competing bakeshop, all the effort Mitchel had put into developing customers in the town, all the goodwill he had developed, would be damages.

So you can see where this leads. Non-competes help employers – from their perspective, they are “pro-competition agreements” that allow them to better compete in the market.

When you’re hired, the company presumably will spend time and money training you over the next several years. You will also likely become privy to trade secrets and other forms of intellectual property (don’t worry – we’ll cover IP agreements in another post). It’s understandable that they would want to put some limitations on your ability to benefit from that by picking up and walking down the street to the nearest competitor and then spilling the bean about how they do business. Like the baker brouhaha, it’s a “reasonable restraint on trade.”

Which brings us to the basic standard – in Massachusetts at least. In the Commonwealth, non-competes are generally upheld by the courts if they are reasonable in length and geographic scope. This will depend on the circumstances of the case – for example, what industry do you work in? A hair salon’s non-compete agreement will be judged a lot differently than a tech company’s, for example.

Let’s figure out why. In this example, it has to do with the geographic scope component. A tech company that, say, manufacturers a robotic product that is put on the market nationally could very well get away with a non-compete clause that bars employees from working for competitors throughout the United States. Yes – you could actually be prohibited from finding another job with a competitor anywhere in the United States. But a hair salon could not get away with this. A reasonable geographic scope for a hair salon would be 10 miles or so because that one hair salon’s reach would only be around that large. Any trade secrets that salon may have developed would not extend much farther than that.

Remember, too, that if you are barred from working for a “competitor,” the definition of what a competitor is may be flexible. In the robotics example just mentioned, a court may construe the industry in question very narrowly. Obviously, the court cannot expect you to simply not work. A narrow reading of what industry the non-compete applies to would allow you to obtain a job in a slightly different industry where your skills could be useful, but where you would not be putting any of your former employer’s trade secrets at risk.

If you have signed a non-compete and have questions about it, I recommend consulting with an attorney. There is a lot of litigation in this area of the law; in fact, litigation over non-competes has risen about 60% in the last decade or so.

Even lawyers sue about non-competes. For example, a journalist out of New York who had been working for legal newswire Law360 was hauled to court when Law360 sued to enforce their non-compete agreement after the reporter left for Reuters. The non-compete specified that following termination the employee would be unable to work in legal news for one year. This case is still pending; we’ll keep you updated on how it turns out.

Once again, I have to give a shout out to small businesses. Along the lines of what I said last week, I would advise a small business to use a non-compete clause, but I would also advise a small business to be flexible. This means consulting with an attorney and coming up with a reasonable non-compete agreement that’s tailored to the specific industry at issue. The point, let’s remember, is not to rake the former employee through the coals – the point of all of this is to protect the trade secrets a business has worked hard to create.

And on the other side, once again, I would suggest that if you sign on to work for a big national corporation, you will almost definitely have to sign a non-compete, and it will almost definitely be broader than it needs to be – but not so broad a court would strike it down.

If you have an issue related to a non-compete agreement or any other employment law issue, give us a call at 978-637-2048 or e-mail at office@levinepirolaw.com.