Should I sign a non-compete contract?
UPDATED: Oct 1, 2022
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Should I sign a non-compete contract?
My employer gave me a contract that states if I quit or am fired either
voluntarily or involuntarily that I am not allowed to seek employment in the same industry for 2 years. Is this legal? Should I sign this?
Asked on August 6, 2018 under Employment Labor Law, Louisiana
SJZ, Member, New York Bar / FreeAdvice Contributing Attorney
Answered 4 years ago | Contributor
1) It is partially enforceable.
a) If you are not receiving some separate payment for signing (a bonus, stock options, etc.), then the law would generally only enforce it against you if you quit, resign, or are fired "for cause" (for doing something highly improper, which would be sufficient to deny you unemployment benefits, like excessive absenteeism, insubordination, ignoring manager instructions or company policy, crime committed at work, etc.; and note, true "for cause" termination is rare, and most firings, including due to the employer being dissatisfied with your performance or feeling you are a bad fit, are not for cause). When all you get for signing is to keep or have you job, the employer cannot take that job away while stopping you from working elsewhere; they can only hold you to the noncompete if you voluntarily leave (or, as stated, are terminated for cause). But if you receive any additional compensation for signing, it will bind you even if you are laid off or fired not for cause. (In this latter case, you received something independent of employment for signing, so as long as you got the value of that other thing, the law holds you to your agreement.)
b) Unless you are a former owner of the business, 2 years is longer than most courts will enforce. Typically, for non-owner employees, a court will enforce 6 - 12 months of noncompetition (usually, the higher level you were, the longer they will hold you to the agreement).
c) Generally, a court will only enforce a non-compete if you are truly "competing" with the employer--and not merely if you are in the same industry. Whether a new job competes with your old depends on whether the new and the old job are competing for the same dollars or customers, at least in theory. Examples: BP and Exxon-Mobile both operate globally in a relatively small and well defined (considering the amount of money involved) industry. An Exxon-Mobile executive could be prevented from working from BP. However, a restaurant in, say, Baton Rouge is not competing with one in New Orleans--different people go to each--so a noncompete from a Baton Rogue restaurant would not stop you from relocing to New Orleans and working for a restaurant there.
2) It is legal with the parameters above.
3) Whether you should sign or not is not something we can advise you on. Factors to consider: how badly do you need this job? how good is the opportunity? what are the working conditions like--do you think that you might find it unpleasant or burn out and so quit, which would put you under the noncompetition agreement's prohibition)? is there another industry you could reasonably get a job in if necessary? etc.
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