A few years ago, sandwich shop Jimmy Johns hit the headlines with the news that they required low level employees to sign non-compete agreements. They later dropped this clause after a public outcry and the New York State Attorney General declaring the clause "unlawful." That should have been the end of low income non-compete agreements, but sadly, it's not.
Yesterday, The New York Times, ran an article documenting the stories of some blue collar workers who have been practically destroyed by non-compete agreements. This story struck me particularly hard:
In 2011, Timothy Gonzalez started working as a labor hand for a company called Singley Construction. He was 18 years old and already a father, and the extent of his education was a high school equivalency test. In other words, he needed money and did not have many options.
Mr. Gonzalez started at a little over $10 an hour in a job he described as "pretty much shoveling dirt." Nevertheless, he signed an employment contract that included a noncompete clause, enforceable for three years within 350 miles of Singley's base in Columbia, Miss.
"All I heard -- at that age and the situation I was in -- was just, 'If you want a paycheck, sign here,' and so I signed there and went to work," said Mr. Gonzalez, who is now 24 and lives in Milton, Fla.
Mr. Gonzalez was later promoted to a job where he operated an environmental drilling rig. After leaving the company two years ago, and subsequently taking a better-paying position with a competitor, Mr. Gonzalez was sued for violating his agreement not to compete.
This case settled out of court, but it shouldn't have gotten that far. Should Mr. Gonzalez have signed something he hadn't read and understood? Of course not. Do most of us sign things we haven't read thoroughly? Of course we do. Just think of how many times you click "I agree" on the terms and conditions on every app you've downloaded. No telling what you've signed away.
While I think that grownups should be responsible for themselves, and am loath to recommend new legislation, I'm going to make a prediction: If companies don't stop attempting to destroy lives with these non-compete agreements, legislatures will step in and you will not like what they do.
It may seem a little harsh, but that's what is going on. Non-compete agreements should be limited to people who could damage your business by going elsewhere. For instance, a salesperson shouldn't be allowed to take a client list with her, and and your Chief Marketing Officer shouldn't be allowed to go to your competitor and lay out your 2017 marketing plan. These people should be covered by non-disclosure and non-compete agreements. A non-compete for any other person should be extremely narrowly tailored and probably non-existent.
Your non-compete agreement may not even hold up in court. In California, they are almost impossible to enforce. In Missouri, you have to offer something valuable to an employee for such a clause.
If you feel you need non-compete clauses, consider the following guidelines, and check with your employment attorney.
High Paid People Only
Non-competes should not be offered or required for people below the executive level and/or direct sales people. Non-disclosures can be used to prevent people from sharing confidential information.
No Non-Exempt Employees
Along with the highly paid clause, it should go without saying that if someone is eligible for overtime pay, they shouldn't be required to sign a non-compete agreement. They cannot damage your retail store by walking across the street and working for your competitor.
The restrictions should be limited to a reasonable geographic area, or a reasonable work function area. A hospital administrator should not effectively be banned from working as a janitor in a competing hospital, nor should she be banned from working as a hospital administrator in a hospital across the country. The time period should be relatively short as well.
Offer Something in Exchange
If your non-compete requires that someone essentially sit on their hands for a year, you should be offering a severance payment equal to that time. Yes, that's expensive. Yes, if your information is so valuable you can't stand the thought of your employees going elsewhere with any knowledge, you should do that.
Before you require a non-compete, ask yourself if this is really benefiting your business or if it's just punishing employees for quitting. If it's the latter, don't even think about it.