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September 22, 2011 7:35 PM

Is the 5-year(!) non-compete clause I signed valid?

I realize this is a question for a lawyer, I just want to get the feel of the Ask community before I approach one.

I have worked for the same company for 16 years. i am a route salesperson that sales goods to restaurants in Texas. For many years I was the only employee (contracted or otherwise) of the company (other than the owners) and I built the route from a handful of clients to over 150 local businesses and some nationwide chains of restaurants. I worked as an independent sub-contractor selling this companies goods for which I was paid a commission on my sales. In other words, the owners of the company paid my company then I paid myself (after all of my expenses for the delivery truck, gas, etc)

About 11 years ago I signed a 5-year non-compete clause that basically stated that I could not sell these same goods for 5 years after my employment ended. I had to choose between signing the non-compete or losing my contract with the owners. So, being young and stupid with kids at home, I signed. Since then I have worked and worked to build the business and have done very well, so well in fact, that the owners decided I was making too much money. As a result, they took all of the customer accounts and commission from me and offered me, not my personal distributorship, a job at about half of the pay. I accepted that job, but after a month or so became so disgusted with the situation that I tendered a two-month resignation letter.

They have since threatened various lawsuits and things like that and keep reminding me of my non-compete (which I no longer have a copy of and that they claim to not be able to find a copy of).

So, am I shit-out-of-luck?

posted by anonymous to Work & Money (20 answers total)

Uh, if they don't have a copy of this noncompete, how would they be able to sue you under its terms?
posted by dfriedman at 7:37 PM on September 22, 2011 [13 favorites]

If they cannot find the contract, my guess is that they would be laughed out of court. Non-compete contracts generally do not hold up in court as far as I know. I am sure someone more learned than I will soon post and will clarify things. Knowing your state will help.
posted by Slinga at 7:40 PM on September 22, 2011 [1 favorite]

I have it on authority from someone that I worked with that no-compete clauses are not valid at all in Texas. Obviously, this is not legal advice, so you should run that by an actual lawyer, but I'm thinking that this is a lot of bluster.
posted by Gilbert at 7:40 PM on September 22, 2011 [1 favorite]

I have a feeling that the contract would mysteriously show up if it benefited them. Talk to a lawyer. Who knows, you might be owed something.
posted by Etrigan at 7:41 PM on September 22, 2011

This first result for 'texas non-compete' appears to have relevant info that non-competes are to a degree enforceable in Texas and that if an agreement is overly broad, the court can 'reform' it to be just broad enough, instead of tossing the entire thing out.
posted by zippy at 7:49 PM on September 22, 2011

If you didn't see it...previously.
posted by COD at 7:56 PM on September 22, 2011

Most small businesses don't have a clue what a non-compete contract is intended for or enforceable upon.

Non-competes are generally intended as a means to keep you from quitting a job, and with knowledge of your former employer's customers/proprietary business knowledge, going after those customers and 'taking' them away from them. This is a pretty common thing in the agency (web/marketing/creative) circle. When I quit my job to go freelance, I honored the contract I signed that stated that I would not call on any of FormerCompany, Inc.'s current customers. This is the part that is very much enforceable.

Many small business owners misunderstand a non-compete to mean that you can't quit working for them and start a business in the same sector (that you can't start a restaurant supply business). This isn't true. They cannot stop you from working in the industry that you're accustomed or trained to do. There are quite a number of court cases out there that have spelled this out.

tl;dr, Generally, you can start your own business delivering restaurant goods to customers. You just can't go after their customers, or use knowledge about those accounts to lure them away from your former employer.
posted by chrisfromthelc at 8:02 PM on September 22, 2011 [3 favorites]

I don't see what the problem is here. If the company does not have a copy of the non-compete contract then, for all intents and purposes, it never existed. If you are worried about this do not ask advice on the internet but rather spend 500 bucks to hire a lawyer to write them a letter requesting that they stop harassing you about the mythical non-compete contract - or else.
posted by Poet_Lariat at 8:11 PM on September 22, 2011 [8 favorites]

I understand the desire to get a quick answer to the question, but there isn't really one. Non-competes are generally governed by case law that weighs several factors and courts are very willing to reform the contract if it's unreasonable either with regard to subject matter, duration, or geographic scope. The law is complicated and state specific. Fortunately, a business lawyer can probably answer it with a couple hours work. Call up a lawyer, explain what you want, and get a rate' it'll probably run you a few hundred bucks, but it'll be good advice and worth it, since this is your livelihood.
posted by Bulgaroktonos at 8:12 PM on September 22, 2011 [1 favorite]

An attorney can't weigh the factors without a copy of the agreement. Poet loriat's advice is dead on.
posted by slmorri at 8:17 PM on September 22, 2011

See a lawyer: labour and employment law. I have no idea what your governing law is. I know that, in Canada, courts tend to look unfavourably on restrictive covenants like this. But you really need to see a lawyer, who'll actually be able to give you legal advice.
posted by smorange at 8:28 PM on September 22, 2011

From my experience, five years is way too long to be enforcable and you need to have received something in consideration for signing other than be coerced to sign to keep your job. I am not a trained legal professional.
posted by JohnnyGunn at 8:31 PM on September 22, 2011

I am not a lawyer nor do I know much about non competes at all. From what I read in the question, the company in question contracted with a separate company (belonging to the OP and who the OP was an employee of) to deliver the goods. At the time that the non compete was signed, the OP was legally an employee of his company, which happened to be the company delivering the restaurant goods. How could a non employee sign a non compete for a company that doesn't have him on payroll? Also, can one company hold another company to a non compete clause? Also, once the original contract between the OPs company and the other company was terminated and the OP became a direct employee, is the noncompete still actually valid? What if the OP dissolved the company that was his when the non compete was signed...does that change the enforceability if the non compete was between the original company and a company that no longer exists?

I'm not a lawyer, I swear. You should probably find one that is able to answer these questions.
posted by MultiFaceted at 8:32 PM on September 22, 2011 [1 favorite]

Not legal advice, not a lawyer. Why don't you tell the company to fax you a copy of the contract so your attorney can look it over? Try to do it by email so you have a record if they say, "We don't have the effing contract and you know that because we've told you x times before."
posted by dixiecupdrinking at 9:59 PM on September 22, 2011 [1 favorite]

JohhnyGunn's point about consideration is very valid -- I was forced to sign a non compete a year after taking a job with no raise, compensation, or promotion. This fact was enough to make the whole contract invalid.
posted by PSB at 5:34 AM on September 23, 2011

Sometimes noncompete agreements are enforceable. Sometimes they aren't. Sometimes the lack of a writing memorializing your contract matters. Sometimes it doesn't. We really don't have enough information here to tell you the answer.

One thing I would ask your lawyer about is what happens if it is or might be enforceable. What happens if you just go ahead and do whatever job it is you want to do? Is the pressure going to be on them to prosecute the case? Are they going to be able to get an order stopping you from working your new job, or just seek damages? Are they going to be able to prove damages?
posted by J. Wilson at 6:46 AM on September 23, 2011

Here are two good overviews about Texas noncompete law. The first is a Texas Supreme Court case from earlier this year that describes the state of Texas noncompete law and adds a new tool for employers to enforce agreements. The second is a powerpoint that was given to a Texas county bar association last month that talks about noncompetes. The short answer from these is that noncompetes ARE enforceable in Texas in the right circumstances.

Essentially, a Court will decide (1) whether there was sufficient consideration given to you for the promise you made (i.e. you gave up the right to compete, so what did you get in return), and (2) whether the restrictions are reasonable (i.e. they should be enough to protect the employer's interests but not too much to punish you). There are fancy legal tests that will apply to this. I haven't studied it in detail, but it looks like Texas courts believe that the "what did you get in return" is satisfied if they gave you access to their trade secrets or confidential information in performing your job.

If the employer is mad enough, and you are a big enough threat to their business, the steps that they would take would be to file for a temporary restraining order/preliminary injunction to stop you from competing, based on the contract. You would fight them in court until the matter was decided. This would be expensive and time consuming for both of you, and would probably keep another firm from hiring you until they were quite sure you could do the work without getting yourself or them in trouble. Your current employer knows that they have that leverage over you, but you should know that they will be disrupted too so if there is a deal to be made they might be open to it.

Practically speaking, I would formally request (in writing, and politely) a copy of your noncompete contract so that you may study it and understand its limitations. While they may understand that it is for purposes of loophole searching, it is unreasonable for them to say "you have to abide by the terms of this contract" while simultaneously refusing to provide you a copy so you may know them. Insist that they respond in writing to the request if they refuse to provide it to you. If they won't deny it in writing, then confirm with your own writing that you asked for it and they refused to provide it.

I have been through this process once before with an employee. In his case, he wanted to be free to work in an indirectly competitive position. We were okay with it and negotiated a limited release of the noncompete to allow for certain work. We basically said "we are okay with you working in the fields of X, Y, Z, provided that you do not use our confidential information and provided that you do NOT work in the fields of A, B, or C." That made both of us happy.

(Not your lawyer and all that, and good luck)
posted by AgentRocket at 8:11 AM on September 23, 2011 [3 favorites]

Oh, and I should add that it will be worth getting a local lawyer to assist you in obtaining and interpreting the noncompete. The law is dense and they should be able to help you more directly understand the relative strength of each party's position and make judgments about how to proceed.
posted by AgentRocket at 8:13 AM on September 23, 2011

I'm not a lawyer, nor do I play one on TV, but I'm curious about the points that MultiFaceted brought up, because they seem like they could be the crux of the issue. The way the original poster described the situation, (s)he was not technically an employee of the company while (s)he built up their business - (s)he was an independent sub-contractor with his own company, doing contracted work for the first company. It was under these circumstances that (s)he signed the non-compete clause. Are non-compete clauses valid only for a company to require of their employees of a company, or can one company coerce another whole company (or one of its employees) to sign a non-compete clause? I don't know, because IANAL, but I'm curious to hear the answer if anyone here knows it, either for Indiana or more generally.
posted by UniversityNomad at 8:23 AM on September 23, 2011

Texas Employment Attorney here, who drafts and reviews covenants not to compete and other restrictive covenants, who has litigated a good number of them, and who has two active cases

Covenants not to Compete ARE enforceable in Texas, and recent Supreme Court cases have made them even easier to enforce. This is a tricky area of the law (albeit a lot less tricky after our business-friendly Texas Supreme Court got through with it and made them easier to enforce).

You need to visit with an attorney who knows the area. It is important to talk to someone who's actually litigated a few covenants, because the case law (which is now VERY pro-covenant enforcement) and the reality at the trial court level (where a particular judge will probably not be too amenable to enforcement) differ. Take his/her advice.

A couple of responses to points in this thread:

Yes, five years is typically unreasonably long for a covenant in Texas. But that's not a hard and fast rule and, more importantly, the statute (15.50 and 15.51 of the Business and Commerce Code) allows the court to reform the covenant to make it reasonable. The fact that it is facially overbroad doesn't invalidate the covenant.

I don't know how they're going to enforce anything if they can't provide a copy of the contract, although I suppose some silly judge might allow them to testify to its terms and the circumstances under which it was lost. Also, if a party is inclined, there are ways to seek the same type of injunctive relief without having an enforceable covenant not to compete (by, for example, making a claim under Texas's common law obligations re: confidentiality in an employment relationship).

The contractor status will matter as a contractor is supposed to be able to work w/ other clients in the same field. Nevertheless, Texas courts have enforced covenants against contractors.

The above is just for context. See an attorney, please.
posted by seventyfour at 1:27 PM on September 23, 2011 [2 favorites]