Leaving A Job To Work For Yourself With A Non-Compete Agreement In Place
Some (most, many?) people dream of working for themselves rather than slaving away at a 9-to-5 job where they're underappreciated, overworked, and underpaid. Maybe you've decided to leave your job and take the big leap of faith into self-employment. You're all set to hand in your notice and review your contract with your current employer, looking for your job termination section, when you see a non-compete clause. This clause says that you cannot work in your current or a related field for up to two years within a 100-mile radius of your current employer.
What Is A Non-Compete Clause?
Non-compete clauses are contractual agreements that restrict an employee's ability to work for a direct competitor of their current employer, should that employment cease. These clauses typically involve not being able to work for direct competitors for periods of time, or within a specific radius of the employment location, or both.
A Brief History Of The Non-Compete Clause
Non-compete clauses date back to the Middle Ages, specifically to the Dyer's Case in England in 1414. A young person named Mr Dyer had a case heard in English court, wherein his former employer (with whom he was an apprentice) alleged that Dyer had promised not to exercise his trade for six months, in the same town where he was previously employed.
Vitalii Vodolazskyi, Shutterstock
The Dyer Case (Cont'd)
The plaintiff no-showed on the court date, and it was held that Mr Dyer could indeed continue to ply his trade and that English common law saw no legal right to withhold him from conducting business in the same town. This foundational case in 1414 has long been the basis of the unenforceability of non-compete clauses, except in specific cases.
Abraham Storck, Wikimedia Commons
The Modern Framework Of The Non-Compete
In modern legal terms, the non-compete clause's status was established in 1711, in a case in England known as Mitchel v. Reynolds, which essentially established that a non-compete clause must be reasonable in its scope in order to be enforceable.
What Do I Do About My Non-Compete Clause?
It's likely that the last time you thought about that non-compete clause in your contract was when you signed it, on the first day of your employment. But, now that it's rearing its ugly head as a potential roadblock between you and your dream of striking out on your own, what should you do about it?
Amnaj Khetsamtip, Shutterstock
Don't Take Any Rash Action
It's important that you not behave rashly after seeing the non-compete clause. There's every chance it isn't enforceable anyway, particularly if the stipulation is that you not work in the same industry within 100 miles of your current employment. That's a long way in any direction and would likely be seen as unreasonable by any court.
Consult With An Employment Lawyer
Before you talk with your boss about exiting to start your own business, take your contract to an employment lawyer and have them review it. They may be able to work around the non-compete part of your contract and offer a remedial solution: a non-solicitation clause.
What's A Non-Solicitation Clause?
Unlike non-compete clauses, non-solicitation causes require that you not directly solicit any clients of your former employer. For example, if you were a psychotherapist working for a firm and then went out on your own, you wouldn't be able to directly tell those former patients of your former firm to come and see you instead. That would be directly soliciting clients from your former employer, which is a big no-no.
Are You Definitely Leaving Your Job?
While non-compete clauses aren't designed to make you stay in a job, they can give you pause for thought. Have you already made plans to leave the position, like handing in your two weeks' notice? If so, have you told them about plans to strike out on your own?
Am I Required To Tell My Soon To Be Former Boss Of My Plans?
While you're not required to inform your boss of your plans to start your own business, it could be advantageous to you. You'll learn how your former employer may respond to the thought of you being in business for yourself—if you're on good terms with them, this may even open up opportunities for collaboration.
What Are The Risks?
There are a few risks about discussing your new venture with management. They may react angrily, proposing that you're going to be poaching their clients, and they may even threaten you with legal action vis-a-vis the non-compete clause of your contract. This is one of the risks of striking out on your own, particularly after you leave a company.
How Should I Handle The Conversation?
The conversation about your departure from the company and your work thereafter needs to be handled delicately and respectfully whilst trying not to destroy the goodwill you've built up over the years. Here are some things you should do during the transition phase from employee to unemployed.
Don't Brag About Your Plans
Even if you're not bragging about your plans, it's best that you don't talk about your ideas to launch a new venture that could be in direct competition with your current employer to anyone—not your co-workers and certainly not any clients that you converse with regularly. This could be seen as solicitation.
Discuss How The New Venture Aligns With Your Goals
When you eventually broach the topic with management, remain focused on how this new venture will bring new opportunities for you and align with your goals and where you're at in life. Even if you're unhappy in your current role, don't discuss that unhappiness with management. Remain positive and focused on what's next.
Be Grateful & Express A Willingness To Work Together
Your managerial staff was likely once in the position you're in: working under someone else, but dreaming of one day running their own business. They may be more sympathetic to your needs than you expect. Try to express your gratitude for all that they've done for you and express a willingness to work together during any transitional period.
Let Your Old Employer Know If They Can Help You
Many employers want to see their employees succeed, not only because they're generally good people, but also because it's reciprocal. You may, in the future, send people their way if they help you today. So, if you think your current employer may be able to help your next venture, let them know! Worst case, they'll say no.
What If It Doesn't Go Well?
It's entirely possible that your soon-to-be former employer won't take kindly to the idea that you're leaving and that you're planning on setting up a business that could directly compete with them. But is the "100-mile radius" language that's built into your contract reasonable? Could you fight it in court?
Consult An Employment Attorney Immediately
If the conversation doesn't go well and your employer threatens to take legal action against you, you must consult with an employment attorney immediately. They'll likely be able to confirm whether or not they think you have a case to fight.
Examine Your Business Plan
You should already have a business plan in place. If so, examine it carefully, as though you were your former employer looking for a way to sink it. Is there any way that your business plan could be construed as poaching clients from your former employer? Of course, people have free will and can follow you to your new venture if they so choose, but is there any part of your business that could be construed as direct solicitation?
What's On The Line For Your Former Employer?
Depending on your position within the company, you may have had access to things like trade secrets, confidential business or personal information, specialized training, or have crafted important relationships with the company's biggest clients. All of these things are possibly on the line for your former employer. But, if your new business venture doesn't deal with or come into contact with any of the above things, it's unlikely the non-compete clause would hold any weight.
Are You A Long-Term Resident Of The Neighborhood?
If you're a long-term resident of a neighborhood (or plan to be), it would likely be deemed unreasonable for you to A) move 100 miles away to begin your business venture, and B) not open your business in the neighborhood in which you live, have lived for a number of years, or plan to live in for the next few decades.
The Broader A Geographical Area, The Less Likely NCCs Are Enforced
Non-compete clauses that draw a smaller radius around a company's headquarters, for example, 10 miles, are much more likely to be enforced than those that draw a large radius. Some non-compete clauses even go as far as state-wide, although these are almost exclusively unenforceable.
Is There A Time Limit In Your Non-Compete Clause?
It's possible that you may have overlooked this, but you need to re-read the non-compete section of your contract and see if there's a time limitation applied, as well as the radius of the non-compete. Most employers will place a time limitation of six months to two years for the duration of time that you cannot work for a direct competitor or open up your own business offering the same or similar services.
What's The Best Way Around A Non-Compete?
Although this is really a job for your lawyer, if you can't afford a lawyer, you can self-represent in these cases. In general, the best way around a non-compete is to find ambiguity in the wording that demonstrates that it places an unreasonable restriction on your ability to seek employment, or to work for yourself. Or, that it isn't in the public interest.
Demonstrate Hardships If The NCC Were Enforced
Of course, 100 miles is a long way in any direction. If you are unable to start your own business or find employment within another industry (which you'd likely have to take a huge pay cut to do), it's possible that you could demonstrate to a judge that you would face undue financial hardships, were the non-compete to be enforced.
Asking Someone To Move 100 Miles Away Is Completely Unreasonable
The 100-mile distance in the company's non-compete policy is a completely unreasonable distance to expect a former employer not to work in an industry they've been trained in and work well within. It may be that the radius distance is (rightly) seen as being completely unreasonable by a court.
You'd Have To Turn Your Life Upside Down
Use your personal life circumstances to demonstrate how enforcing the non-compete clause would mean you'd have to turn your life upside down and start over 100 miles away—selling your home, buying a new one, putting your kids in different schools, etc. Demonstrate to the court how much that would disrupt your life and that of your family.
Negotiate It Down
If your non-compete doesn't get thrown out entirely, you may be able to negotiate it down, so that it becomes a non-solicitation agreement, or even negotiate down the radius distance, allowing you to open your business closer to your old employer than before.
Have You Ever Dealt With A Non-Compete Clause?
Tell us about your experiences with non-compete clauses in the comments below. Are they legal in your state? Let us know if you dealt with a tricky former employer who tried to sue you for violating their non-compete.
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