John Maher: Hi, I’m John Maher. Today, I’m here with Samuel Perkins, a founding partner of Brody, Hardoon, Perkins & Kesten in Boston, Massachusetts. Sam has been lead counsel in dozens of jury trials, in the federal and state courts of Massachusetts and Vermont, and his diverse practice areas include Commercial Litigation and Employment Law.
Today, we’re talking about leaving a company and going into competition. Welcome, Sam.
Samuel Perkins: How are you?
Do people often leave a company to join a competing company?
John: Good, thanks. Sam, do people often leave a company to join a competing company or perhaps to start a business of their own of the same type?
Samuel: Yeah. I think a hefty proportion of the employment cases that we have involved people who decided that their time with their current employer is over, and they want to continue in the same line of work. They may be thinking of leaving with a group of their fellow employees, and setting up their own business, or joining another business in the same line of work. We see that a good deal.
John: We might call this “Jumping Ship.” What happens if someone tries to do this, but they have a Non‑Competition Agreement that they’ve signed when they started at their previous employer?
Samuel: Most employers try to protect themselves against this happening and try to protect themselves not only against having employees leave but having employees take customers, and having employees take intellectual property or confidential information. I think that in any valuable industry, most people these days are required to sign Non‑Competition and Non‑Solicitation Agreements.
Non‑Competition Agreements are typically drawn to prohibit people from going into the same line of work, and that usually has some concrete description, depending on what industry or profession you’re in. They typically have a time period. There are legal limits on the time periods that are reasonable, and it’s unusual these days to see an enforceable time period of more than a year, and in some industries, two years.
John: It seems to me that this can start to become overly difficult for the employee, where most employees know what they know, they have a certain set of skills, and that set of skills translates into working for that company, or a very similar type of company.
Limits of Non-Competition Agreements
Having a Non‑Competition Agreement might make it so that they can’t get a job in that industry that they know a lot of things about. Are there limits, in terms of what a company is able to put in a Non‑Competition Agreement, so that it doesn’t become overly difficult for an employee to find work?
Samuel: Yeah. Obviously there’s something to be said on both sides of the issue — from the employer’s point of view and the employee’s point of view — about unfairness. A lot of states, by the way, as a matter of public policy, have re‑examined this question, and are changing laws on enforcement of Non‑Competition Agreements.
California, for example, will not enforce them. That’s a response, I think, to the California culture of start‑up companies with people leaving frequently, and needing to take those skills with them to a new company, without having to wait a year or two.
Massachusetts has considered that, but at this point, Non‑Competition Agreements are still enforceable in Massachusetts. You asked about reasonable limits on them. There are no hard and fast rules. There are geographic limits, for example. A company can’t prohibit an employee from going into the same line of work in an area that’s outside the market area of the company they’re leaving.
If you’re moving across the country, and your current employer only sells on the East Coast, then it’s unfair for them to have a Non‑Competition Agreement or try to enforce it for your going to work selling to people on the West Coast.
There are also limits of reasonableness on the scope of what you can prohibit people from doing. If a Non‑Competition Agreement basically stretches way beyond what you’ve been doing for your current employer, the court will find that it’s unreasonable in scope.
The final, probably the most important measure of unreasonableness is how long the Non‑Competition Agreement stays in effect. This is really a balancing act between the interests of the employer and the employee, and what the employee was in the position to bargain away at the outset.
A lot of companies pick a year as the time period for a Non‑Competition Agreement to stay in effect. We’ve seen a lot that go as long as two years, depending on the industry that you’re in. A year often is about the limit of reasonableness.
How Attorneys Can Help With Non-Competition Agreements
John: OK. It sounds like there could be some wiggle room, in terms of being able to negotiate my Non‑Competition Agreement. What can an attorney do to help someone get out of, or around, a Non‑Competition Agreement?
Samuel: That’s interesting. Normally Non‑Competition Agreements, at the outset, don’t involve lawyers. An employee, who’s relatively savvy or who has read the Internet, knows that there’s a value to not having a really difficult Non‑Competition, a long or entangling Non‑Competition Agreement, when they sign up with a company.
Companies are sensitive to this too. They don’t want to drive employees away because the Non‑Competition Agreements are so onerous. Employees, I think, are in a position to negotiate Non‑Competition Agreements at the outset, and to try to put some reasonable limits on them.
Most sides try to shy away from that at the hiring stage. Employers try not to be too overreaching, and employees would prefer to get the job, rather than to fight over a hypothetical problem which may never arise.
Difference between a Non‑Competition Agreement and a Non‑Solicitation Agreement
John: You mentioned Non‑Solicitation Agreements. What is the difference between a Non‑Competition Agreement and a Non‑Solicitation Agreement?
Samuel: Sure. Non‑competition basically prohibits you from going into a line of business where you’ll be diverting business and revenue from the company, and its established line of work. Non‑solicitation typically refers to not soliciting clients or customers of the company, so that if in fact you do go into another company, a Non‑Solicitation Agreement typically would prohibit you from soliciting your former clients at the old company as customers for a period of time while you’re at the new company.
Non‑Solicitation Agreements also apply to not trying to poach the fellow employees that you worked with back at your old company, because what frequently happens when someone leaves their old company, goes to a new company, and knows that they had a really good, established set of co‑workers at the old company, they’ll call up and start trying to convince their colleagues from the old company to come work with them at the new company.
John: So that would be considered solicitation?
Samuel: Yes. That’s employee solicitation as opposed to customer solicitation.
How long do Non‑Compete Agreements tend to be set for?
John: Right. You mentioned a little bit about the length of time that Non‑Compete Agreements are valid for. How long do Non‑Compete Agreements tend to be set for?
Samuel: The commonest time period that we see is a year. There are some which are written to be two years, and some which have not been enforceable under the two‑year period. It really depends on the nature of the work. There are some kinds of industries where you would potentially have the ability to destroy your former employer if you got back into that line of work within two years.
That’s particularly the case when you’re dealing with someone who is a scientist, or a unique computer skills person, who is such a draw that all the customers would immediately go to that person as soon as they found out that he or she had left, and was looking for those customers to come join him. In those situations, it’s reasonable to have a longer period for the non‑compete.
John: Really great information. Samuel Perkins, thanks very much for speaking with me today.
John: For more information about Brody, Hardoon, Perkins & Kesten, visit the firm’s website at bhpklaw.com or call 888‑877‑6393.