Dealing With Non-Compete Agreements? Get a Release.
As a lawyer, I’m regularly approached by startups that are wondering if they’ll face any issues when hiring someone who may have an overlapping non-compete agreement.
This frequently arises because startups often want to hire people with experience so they don’t need to waste time training them. This mentality often leads them to consider candidates who are already employed in the same industry — or an industry that is tangential. If those candidates have non-competes, things can get tricky.
Most recruiters are under the impression that they can hire someone who has a non-compete with no issues as long as they are not in competition with the former employer. And a few others might do a bit more research and figure out that there are three general reasons why non-competes are sometimes deemed invalid:
- They impose greater restrictions than required in an effort to guard an employer’s legitimate protectable interests.
- They impose undue hardship on the employee or are harmful to the general public.
- They are not reasonably limited by geography or a timeline.
Many startups assume they can find a way to back into one of these reasons and therefore will have no issues hiring someone with a non-compete.
But the reality is muddier than that. You may, in fact, not be in a competitive industry to the former employer, or the non-compete may impose greater restrictions than required, or there may be undue hardship, or the time limit and geography may be too encompassing — or all of the above. But you might have to waste thousands of dollars in legal fees to get to that conclusion.
Further, there is also the chance that the court deems one part of the non-compete invalid and leaves the rest intact or alters it to make it reasonable. Practically speaking, an employer who wakes up on the wrong side of the bed may be able to find a way to challenge your hiring of their employee, and unfortunately for you, the bar they need to clear to give you a legal headache is not very high.
Let’s say you are an alcoholic beverage distributor, and you need to hire someone to help with sales. The perfect candidate would have a lot of contacts in the industry and would already have a lot of sales experience. Instantly, you think of the marketing representative you work with all the time at a certain brewery. After interviewing them, they seem like the perfect fit.You’re ready to hire them, but you find out they have a non-compete with their brewery that prohibits them from working with any competitor on Earth for 10 years.
Clearly, the terms of the non-compete are overly broad: Earth is not a reasonable geographical range, and 10 years would be significantly longer than the overwhelming amount of jurisdictions allow. And as a distributor, you aren’t even a direct competitor to the brewery.
However, if the owner of the brewery wants to challenge you and has a lawyer on hand, an argument could be made that a distributor may reveal some competitive concerns. With that angle in mind, a judge may just roll back the geographic and temporal restrictions to make them more reasonable.
There is a way for startups to potentially avoid this headache: Get your prospective employee to have their employer sign a release of their non-compete. Some people don’t want to do this because it seems like an awkward conversation for an employee to have with their employer. I get it.
But take it from me: It’s less awkward than getting sued, it’s a whole lot less expensive, and it’s significantly less of a legal migraine. Set aside the awkwardness and give it a shot — you might be surprised at the outcome.