Non Compete Risk in a Tight Labor Market

How a Tight Labor Market Increases Non Compete Risk

A record 4.5 million Americans quit or changed jobs in March, 2022.  Employers are reporting increased pressure to raise pay and offer enhanced benefits in order to attract and retain their top talent.

That is the carrot.  There is also a stick, which is enforcement of non compete agreements, or at least threats to enforce them.  The good news is that if you are asked to sign a non compete for a new job, you may have more negotiating leverage than is usually the case, given the tight labor market.

The bad news is that your current employer may be more likely to try to hold you to whatever agreement you signed when you started your job.  Though retaining key employees for the sake of retaining them is not one of the reasons employers can enforce these agreements (see below), there is a stronger incentive than anytime in recent history for employers to try.

The Basic Rules of Non Compete Enforcement

If you live or work in Massachusetts, and signed your non compete on or after October 1, 2018, your agreement is subject to the requirements of the new non compete statute.  These requirements include: (i) a provision to pay you half your highest base salary for the duration of the non compete; and (ii) evidence that you were given ten days to review the agreement before signing, and advised to consult with counsel.  Additionally, agreements subject to this law cannot be enforced against you if you are non-exempt from overtime or if you are terminated without cause.

Even if your agreement is dated before October, 2018, there are many opportunities to question enforcement.  First, enforcement must be necessary to protect a "legitimate interest" of your employer.  This basically means it needs to protect either the employer's confidential information or its good will (usually in a sales context, the customer relationships you have developed by working at the company).  Simply not wanting you to leave because it would be difficult to replace you is not a legitimate interest for purposes of a non compete.

Second, the length of the restricted period, or the geographic scope, could be unreasonable in light of the interests the employer is trying to protect.  Anything over a year, or that extends to a broader territory than you actually worked in, could be subject to challenge on this basis.

Finally, there are things your employer could have done to call the agreement into question.  Examples include failing to live up to its agreements with you, or significant changes in your compensation or responsibilities after signing the original agreement.

What to Do if You Are Thinking of Leaving a Job

If you are thinking about leaving your job, it is best to speak to an attorney before you accept another offer and give your notice.  What many people don't realize until it is too late is that their new employer might rescind the offer if they are threatened with litigation over a non compete.  The employee then finds themselves out of their old job but without a new one to go to.

In contrast, if you know your rights ahead of time, you can make an informed decision not only about giving your notice, but also how you discuss the matter with your prospective new employer.  This way you will know before you quit whether the new employer will stand by you in the event of a dispute, or whether you will be out of a job if your old employer threatens suit. 

What to Do if You Are Threatened With a Non Compete Lawsuit

This may come as a simple email from your boss or Human Resources.  It could also be a cease and desist letter, usually written by a lawyer demanding that you stop doing what you are doing (i.e., taking the new job).  Neither of these require you to respond.  They also don't necessarily mean that your employer is going to take the next step and file a lawsuit.

However, it is almost always a good idea to consult an attorney as soon as you receive a threat of a lawsuit.  Not only can this help give you clarity and often peace of mind about your level of risk, but it is also a great opportunity to negotiate a resolution with your former employer that will allow you to take the new job and address any legitimate concerns they may have.

How We Can Help

We offer a flat fee review of your agreement, as well as negotiation with your employer and, if needed, litigation defense.  It starts with an initial call, which is absolutely free.  Just click the button below to schedule a call back from a member of our team, or call us directly at (781) 784-2322.

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