Traditionally, companies have used noncompetes to prevent highly paid senior managers from going to work for their former employers’ competitors.
Today, however, noncompetes are even used with minimum wage workers. For example, see Does Jimmy John’s Noncompete Clause for Sandwich Makers Have Legal Legs?
You might be presented with a noncompete agreement before your first day on the job or even after years of service. In either case, you should think carefully before signing.
Understanding Noncompete Agreements
A noncompete agreement can be a standalone agreement or a clause or attachment in a longer employment agreement.
To understand why your employer might want you to sign one, read this article: Noncompete Agreements: How to Create an Agreement You Can Enforce.
Basically, a noncompete agreement restricts your employment opportunities after you leave your current job, regardless of whether you leave voluntarily.
A noncompete can restrict your ability to do specific types of work or go to work for a company that competes with your current employer.
This may sound scary, and it should. A noncompete can affect your right to work in your profession and support yourself and your family.
To learn more about what to look out for when reviewing a noncompete, read What You Need to Know before Signing a Noncompete Agreement.
Do You Have to Sign It?
Most companies that present employees with noncompete agreements do so on a “take it or leave it” basis. It’s not negotiable if you want the job or want to keep the job. However, it doesn’t hurt to ask whether the company will waive the provision in your case.
Whether the company will agree to drop this requirement may depend on things like these:
- how much the company wants you,
- the types of confidential material you’ve been exposed to or would be exposed to,
- how worried the company is about your going to work for a competitor,
- the competition for your position,
- whether the company has ever been burned due to failure to insist on a noncompete, and
- whether it has granted any waivers in the past.
If the company won’t drop the requirement, then you should think carefully about whether you can live with the restrictions or whether you should just walk away.
When Can a Noncompete Be Enforced?
In some states, noncompetes are unenforceable. In Virginia, they are enforceable under certain conditions.
To determine whether a noncompete agreement can be enforced in Virginia, courts will consider the following four factors:
- Is the restraint reasonable, in that it is no greater than necessary to protect the employer in some legitimate business interest?
- Is the restraint reasonable, in that it is not unduly harsh and oppressive in curtailing the legitimate efforts of the employee to earn a living?
- Is the restraint reasonable from the standpoint of public policy?
- Is the restraint reasonable in terms of function, geographic scope, and duration?
“Legitimate business interests” include protecting an employer’s trade secrets, confidential information, pricing strategies, customer lists, etc.
A noncompete can be considered harsh and oppressive if it restricts employment in a broad geographic area and/or for a long time. For example:
- An agreement that restricts employment in the same city is more likely to be enforced than one that restricts employment anywhere in the world.
- An agreement that restricts employment for one year is more likely to be enforced than an agreement that restricts employment for three years or more.
Fortunately for employees, Virginia doesn’t make it easy for companies to enforce noncompetes. Virginia does not have a “blue pencil rule” allowing courts to modify or narrow the scope of an unreasonable noncompete agreement to make it reasonable. If it’s not drafted right in the first place, it can’t be enforced.
To be enforceable, any contract requires “consideration,” or value exchanged for value. When it comes to a new employee, the “consideration” is that the employee will get the job “in exchange for” signing the noncompete. However, when an employee is presented with a noncompete after starting work, the nature of the “consideration” is not so obvious. Will the employee be fired for refusing to sign? Is that “consideration”? Virginia courts aren’t clear on this issue.
Very broad restrictions are also more likely to be found contrary to public policy. Obviously, preventing people from working isn’t good for the state’s economy.
Understanding Nonsolicitation Agreements
Many noncompete agreements include a nonsolicitation clause, or you may be asked to sign a nonsolicitation agreement even if you aren’t asked to sign a more general noncompete.
In a nonsolicitation agreement, you may agree not to:
- solicit business from your employer’s customers, or
- try to get your employer’s employees to join a competitor.
What If You Don’t Sign?
If your employer doesn’t ask you to sign a noncompete, or if you refuse to sign and still keep your job, you’re still subject to some restrictions on competition.
Under Virginia common law, an employee owes an employer a fiduciary duty of loyalty. This includes a specific duty not to compete with the employer during (but not after) the term of employment.
Other laws, such as those protecting trade secrets, prohibit employees from taking or misusing certain kinds of proprietary information, including client lists.
If You Want to Learn More…
If you want to learn more about noncompete agreements, please click here.
If you want to know more about your rights as an employee, please click here to download our guide on “Employment Law for Women.”
When you’re ready to talk, we’re here to listen.