How To Negotiate Non Compete and Non Solicit Agreements

Thanks to Joyce and Rob at Colson Quinn in Boulder!  Visit their blog: Lawyers you can Love.
 
As business competition heats up and the economy (not to mention Colorado weather) cools down, we are being asked to review non compete and non solicit provisions for executives and companies.

Companies don’t want valuable information walking out the door and business professionals want to know they can earn a living elsewhere.

Whether it is a non compete (you may not go to work for a competitor for a specified period of time) or a non-solicit (you may not solicit customers, clients and employees from your former company or client) or both, you should be wary of such provisions.

Top 10 Non Compete Non Solicit Tips

Here are our tips should you be asked to sign such restrictive provisions whether it is in a customer contract or an employment agreement.


1.    If you sign an agreement with a non compete or non solicit provision, be prepared to live with it as written.  You are likely unable to afford the costs of challenging the clause. And, even if you can, judges vary widely on how they apply them because they are so fact dependent.

2.    Try to avoid signing the contract with such provisions. If the employer wants you badly enough, they may back down. Or they may agree to just a trade secret provision.

3.    If you must sign a contract with a non compete, narrow the scope. The amount of time, the scope of the business and the geographic limitation are usually broad in these provisions.

4.    Make sure that the non compete or non solicit contained in the contract is linked to a business interest, i.e. protection of trade secrets, confidential information and/or investment in training and education for employees. If you are not exposed to such information or don’t get the training, the non compete may not be enforceable. The employer has to protect more than general job knowledge in order for the non compete to be enforceable.

5.    If you must sign a non compete, try to get extra compensation for it if possible, e.g. a sign on bonus or a severance package. If the employer balks, tell that them that such compensation or “consideration” makes this covenant enforceable. You should note that in most state, the signing of a covenant not to compete at the beginning of employment is sufficient.

6.    Do not agree to pay for attorneys fees for the employer should you want to challenge the non compete. The thought of having to pay your own attorneys fees plus the employers fees is enough to keep most employees from challenging a non compete. It is also an effective deterrent to settlement. Why? The employer has leverage knowing you will balk because of attorney fees.

7.    Non Solicit clauses--make sure the contract distinguishes between customers your new employer has vs. your old employer. Agree only not to “solicit” customers. Do not agree to not solicit where your former employer’s customers seek you out or the customers are already customers of the new employer.

8.    You can often change such provisions despite employer’s claim that they have to have the same provisions against all employees.  However, executives often have very different provisions than intermediate or lower level employees. You can often limit the length and the scope of the non compete. You can also have different start dates and exclude from the non compete specified customers and industries.

9.    Keep track of the covenant you signed, including paperwork and emails, and whether your employer is enforcing covenants uniformly. If not, the company may not be able to enforce the non compete against you.  Most employers want to know if you are subject to such provisions—you may not get hired if you have signed one. Good to know if you did and what it says.

10.   You are better off with a non solicit than a non compete. You want to be able to work for future employers. Tell your prospective employer if you are subject to a non compete. Your new employer does not want to get a demand letter threatening a lawsuit.