When Matt Marx was a young software engineer, he arrived at the office of a new job and saw a stack of documents awaiting his signature.
One of the documents was a non-compete agreement. Marx didn’t remember being told about this step when he accepted the job offer, but his boss explained that all employees signed before starting work. The language of the agreement was somewhat alarming: It said if he left the company, he could not work at another company doing speech recognition — the field of study Marx completed his master’s degree in — for two years.
But what could he do? He had already turned down all the other job offers he’d had. So, he signed the non-compete.
What Is a Non-Compete Agreement?
In Massachusetts, the state where Marx worked at the time, employers are now no longer allowed to present employees with non-competes agreements after they have already accepted a job offer. But states have wildly different levels of regulation around non-competes and across the country as a whole they are quite common. Around 50 percent of employers ask their employees to sign non-competes, with some variation across different industries and wage levels, according to a 2019 Economic Policy Institute report.
Marx, who in 2004 switched careers from software engineering to researching non-competes, said these agreements are common in the tech industry. In 2011, he conducted a study of engineers in the Institute of Electrical and Electronics Engineers professional association that showed about half had signed non-compete agreements.
There is no standard for what non-compete agreements contain. They can be very specific, like stating that within a year of leaving the company you aren’t allowed to do database work at Apple, for example. Or they could be incredibly broad — Marx said he’s seen ones that prevent employees from working in software engineering for a period of two years after leaving the company.
The basic idea is to prevent unfair competition from former employees at a company, said Nicholas Ruble, an employment and labor lawyer with Baker Sterchi Cowden & Rice law firm. Non-competes have become so prevalent, according to Ruble, partly because it is so easy for companies to download non-compete agreement templates from the internet.
“They’ve seen it online and they think it seems like a good idea to have,” Ruble said. “Whereas in the past, maybe they didn’t think about having a non-compete.”
What should developers do when they are asked to sign a non-compete agreement? Marx and Ruble shared their suggestions.
What Are Your Options When Asked to Sign a Non-Compete Agreement?
- Request a copy of the document before accepting the job offer.
- Have a lawyer review the document and determine its impact on you.
- Negotiate for more specific terms.
- Talk to your employer before assuming a new job might violate the agreement.
Ask About Non-Competes During the Interview Process
While companies often ask candidates to sign non-compete agreements when they accept an offer letter, they might also do so after the employee has already accepted the job, like what Marx experienced. Prospective candidates shouldn’t be afraid to ask during the interview process whether they would be required to sign a non-compete, Marx said.
“You should ask,” he said. “Don’t just hope that they won’t ask you to sign a non-compete. It’s not as if they’re gonna be like, ‘Oh, we hadn’t thought about a non-compete — oh, yeah, now we’ll do it.’”
Asking during the interview stage prevents candidates from being blindsided after they’ve already committed to the job. If a company does require employees to sign one, candidates can request to see a copy of the document ahead of time so they can weigh the terms of the agreement into their decision-making process while interviewing with other companies. Seeing the document early also gives candidates more time and leverage to negotiate the non-compete with the prospective company.
Negotiate the Terms of the Agreement
Most of the time when employees are asked to sign a non-compete at the start of a new job, they just do it.
“I think that that’s probably the normal course,” Ruble said. “Most employees, when they sign on, are excited to get started, and so they’re not generally thinking about the end of their employment with their prospective employer.”
“There’s nothing preventing the company from changing your non-compete ... It’s not like everybody has to have the same one.”
But the terms of a non-compete agreement are definitely negotiable, and it can benefit employees to negotiate.
“There’s nothing preventing the company from changing your non-compete,” Marx said. “It’s not like everybody has to have the same one.”
Employers may agree to forgo the non-compete entirely. Other times, employers may agree to changes, like shortening the length of time the agreement is active or listing specific companies employees may not work for instead of using vague terms like “competitor.”
While there isn’t any research tracking the prevalence of non-competes over time, the large number of people who have quit their jobs recently, known as the Great Resignation, has recently shifted the balance of power toward workers, making it more possible to successfully negotiate for a better non-compete agreement, Ruble said.
Have a Lawyer Look Over the Agreement
Last year, the Biden Administration asked the Federal Trade Commission to look into creating regulation around the use of non-compete agreements that unfairly limit worker mobility.
That may eventually have an effect on how companies in the United States use non-competes, but as it stands now, there aren’t any federal standards. And the landscape can be pretty confusing: Each state has different standards, with some states banning them almost entirely, like California and North Dakota, and other states enforcing them.
It can be helpful to have a lawyer look over the agreement and determine if it is too strict, Marx said. That’s especially the case because the pandemic has expedited the adoption of remote work, which adds a confusing twist to the enforcement of non-competes. These days, developers could be living in California and working for a company based in New York. It can be a challenge to figure out exactly which state’s laws employees are subject to, so having a lawyer look at the agreement can help untangle its implications for the employee’s future job opportunities.
Have a Conversation With Your Employer
Many developers who sign non-competes rule out future jobs they want even before their employer takes action and before any ruling from a court.
“If your non-compete says, ‘no software,’ you might think, ‘Oh, no, I can’t work in software,’” Marx said. “So there’s this chilling [effect]. You might take yourself out of the game thinking, ‘I’m gonna get sued,’ even if the judge would never enforce it.”
A year after Marx left his software engineering job for which he signed a two-year non-compete agreement, he wanted to join a startup that he realized would have violated the agreement. He decided to call his former boss and ask for permission.
“‘I want to go join another speech recognition company, but I don’t think I can because I signed that non-compete,’” Marx told his former employer. “‘But you’re doing business-to-business and they’re doing business-to-consumer so I don’t think it infringes on the non-compete, is that okay?’”
His former employer said yes. It turned out fine, even though at the time Marx didn’t think to get the permission in writing, so the company still could have come after him. In those situations, Marx said, it’s important to get the conversation in writing.
Non-Competes Can Leave Developers in Job Limbo
Non-competes are applicable regardless of whether employees quit their jobs, are laid off or are fired. And employees can be asked to sign non-competes well into their tenure at a company, like when venture capitalists ask founders to have all employees sign one before providing funding, Marx said.
Although non-compete clauses technically only prevent employees from working for competitors, companies also use them to do the work of non-disclosure and non-solicitation agreements, Marx said. That’s because proving where a former employee works is much easier than proving an employee has stolen the employer’s intellectual property.
“Trade secret litigation is very expensive,” Marx said. “How do you prove that they used the information at the new company? It’s tricky. So a lot of [companies] like non-competes for that reason.”
When employers decide to enforce a non-compete, they usually do so by suing the new employer for assisting their employee break the contract, Ruble said. The burden of proof is on the former employer to prove that the agreement deserves to be enforced.
“The judge is gonna say, ‘I don’t know if you’re guilty or not, but you can’t work at a new job until I can hear your case in December because I’m really busy.’ Okay, so for now, you’re unemployed until December.”
“The general rule everywhere is that the employer needs to be seeking to protect [an] interest from unfair competition from former employees,” Ruble said. “And those interests are usually customer contacts and trade secrets.”
If the terms of the non-compete are too broad — saying the employee can’t work in software engineering anywhere in the country, for example — the court may find the terms unenforceable.
But even if the court rules in an employee’s favor, the entire process can still significantly hinder their employment prospects. New companies may get spooked about hiring the employee if the former employer issues a cease and desist. If the former employer pursues enforcement, it may place a temporary restraining order on the employee to prevent them from working while the case proceeds through the courts, Ruble said. The court will likely also prevent the employee from working at the new company before a decision is reached.
“The judge is gonna say, ‘I don’t know if you’re guilty or not, but you can’t work at a new job until I can hear your case in December because I’m really busy.’ Okay, so for now, you’re unemployed until December,” Marx said.
So, why not try to avoid that situation entirely? Next time you’re given a non-compete agreement, remember you have options.