All you need to know about a non compete agreement when switching jobs

Anyone who has worked in a competitive industry, and has moved around and switched jobs within that industry, is probably familiar with an onboarding form called a non-compete agreement. 

Most of the other onboarding paperwork is straightforward: contact info, direct deposit, and training manuals. It can be easy to zip through without giving it a lot of thought. The non-compete agreement, however, should give you some pause before you sign it, especially if you are working in the same industry and region as your previous job. 

Non-compete agreements can be tricky to navigate, so today we are going to answer the most common questions about non-compete agreements. Afterward, you’ll have all you need to know about a non-compete agreement when you are switching jobs. 

In this article we’ll discuss:

• What is a non-compete agreement

• What’s the purpose of a non-compete agreement

• How non-compete agreements may be enforced

• Whether being presented a non-compete agreement is a red flag

What is a non-compete agreement?

A non-compete agreement is a legally binding agreement between an employer and their employee. It’s typical to be presented with a non-compete agreement during onboarding, or at times during an earlier meeting. Whenever you are given a stack of papers to fill out, check to see if one of them is a non-compete agreement. 

What is the purpose of a non-compete agreement?

The purpose of a non-compete agreement is simple: as the employee, you are agreeing to not work for, or become via self-employment, a competitor.

The trick is that the agreement doesn’t terminate at the end of your time with that company. By signing a non-compete agreement, you are agreeing to not work as a competitor even after your employment with the company has ended. In most cases, it does not matter whether you were laid off, fired, or if you resigned. 

In most cases, the length of the term of the agreement is determined. They typically average about one-year post-employment. However there is no set format for non-compete agreements, so it’s important to read through them carefully.

What industries use non-compete agreements?

You will most commonly come across non-compete agreements in industries where you might be asked to disclose trade secrets, intellectual property, and client databases. 

Think of industries like

• Sales and service companies

• Media

• Corporations

• Financial services

• Information technology

• Manufacturers

This means that because of the nature of your job, you will likely learn insights, analytics, strategies, and trends which can put one product or service at an advantage over others. A non-compete agreement ensures that whatever you learn from working with one company, cannot come back to be used against them. This applies to both working for a competitor company and creating your own business.

There are even some non-compete agreements that specify what regions or industries an ex-employee may work within in the future. Again, if you are handed a non-compete agreement, it’s crucial to have clarity on the parameters. They will affect you down the line.

What is the difference between an NDA and a non-compete?

NDA stands for a non-disclosure agreement. The difference between non-disclosure and non-compete is in the details. Non-disclosure agreements are not strictly between an employer and employee dynamic. Non-disclosures are used regularly in any kind of interaction where information is being exchanged, and at least one of the parties wishes to remain confidential. 

Non-compete agreements, on the other hand, are specifically regarding employment restrictions.

Does a non-compete mean I can't work in the same industry?

So what does that mean for someone who is switching jobs? If their experience is in one industry, do they have to change industries if they signed a non-compete agreement?

Not exactly. 

Generally speaking, non-compete agreements restrict you to only a few categories. Namely location, the time elapsed since employment, and defined competitors.

Location 

Location is determined in a non-compete agreement to delineate where the company's immediate competitors lay. So you can work for a competitor that is outside of the zone of business of the original employer.

A reasonable restriction to put on an employee depends on the company and industry. Most commonly, if you have conducted business in a county or town, then it would be considered reasonable for a non-compete agreement to restrict you from continuing to work in the same industry in those same areas.

Time lapsed

Reasonable non-compete agreements will, on average, fall somewhere between six months and two years post-employment. Although technically, if undefined, a non-compete agreement could be considered indefinite.

Defined competitors

Employers also have to define a list of competitors. The list does not have to be exhaustive, but rather it describes a competitor based on how their success could hurt the primary company’s business.

Another way to look at it is if a competitor's business could cause customers to leave the primary company, then you are likely restricted from working for them. 

Are non-competes really enforceable?

Yes, non-compete agreements are legally binding, therefore they are enforceable. You can be sued for breaching this contract. 

Now, how hard is it to enforce a non-compete agreement? That’s a slightly different question with a slightly different answer.

If a company fails to provide the information listed above (defined location, time lapsed, and competitors) or uses unreasonable parameters, the agreement is not likely to be upheld in a court case. That does mean that if you sign a non-compete agreement and realize later that it’s wrongfully restrictive, the only way out is to wait to be sued, take the company to court, and plead your case. 

Additionally, not all states uphold the integrity of a non-compete agreement. California, North Dakota, and Oklahoma have full bans on non-compete agreements, prohibiting all except for special scenarios. 

Even so, each state handles non-compete agreements differently. If you are presented with a non-compete agreement during onboarding, you should look up your state’s laws before signing it. 

Can I refuse to sign a non-compete agreement?

It is absolutely within your rights to decline to sign a non-compete agreement. However, know that doing so could result in your job offer being revoked, or terminated if you’ve already started. 

Is a non-compete a red flag?

A non-compete agreement is not inherently a red flag. Generally speaking, non-compete agreements are an honorable approach to maintaining confidentiality, and therefore your company’s edge, over certain industries. It can be used as a tool though for determining if the company is a good fit for you. 

After you’re handed a non-compete agreement to sign, take a moment to read through it. Are the restrictions reasonable? Is the company looking to uphold the integrity of its insights, or are they trying to control its employees? In most cases, non-compete agreements simply mean that the company has a proprietary advantage they want to keep. In other words, it’s a business safeguard.

Key takeaways

1. Non-compete agreements are put in place to uphold proprietary information, clients, projects, and industry secrets. 

2. Non-compete agreements must define their parameters–and be reasonable–in order for them to be upheld in court. 

3. You can refuse to sign a non-compete agreement, but it might jeopardize your job offer.

4. By signing a non-compete agreement, you do not have to change industries. You can still work for a competitor, as long as your employer doesn't negatively impact the business of the signed agreement.