Is this non-compete rubbish or what?
April 11, 2006 1:37 PM   Subscribe

Two-part question about non-compete contracts...

I have been working for a small (boss, me, co-worker, occasional part-timers when it gets crazy) company for about two years as an independent contractor - hourly pay, but the hours are flexible - as needed, and I take care of my own insurance and taxes. Never mind that under IRS guidelines, I meet few if any requirements for independent contractor status.

In October, after having worked for the company 1.5 years without a non-compete (despite attempts to poach me by other companies), I was given a non-compete contract to sign. The terms were for two years, that I would not compete with any company [my boss] owns. I was told that if I did not sign it, "we [would be] done here." In other words, under duress. Up to that point, when a project was in swing, I'd work 50-60 hours a week, and cut back to about 30 (voluntarily) during slow periods - doing repairs, rebuilding equipment. Immediately after the contrat was signed, my hours were cut to almost nothing - I've worked perhaps 200 hours, tops, since then. (luckily I am able to fix cars and teach to at least survive.) The company has not had any major projects in that time, but even the part-time help that assisted us on big projects called to perform emergency repairs before I was. In addition, when I tried to get my mortgage re-financed recently, my boss refused to even sign off that I'd been working as a contractor for the past two years, effectively costing me .75% on my APR.

I now am interviewing with another company in the same industry. While the company I was doing work for has only been installation and repair, the new company designs, builds, installs and services their own equipment. My question is twofold: 1) is the non-compete enforceable considering a) my (former?) boss has had no work for me starting immediately after the signing, thus being against good faith that my hours would be something like what they had been, b) i'm a contract worker anyway, and the expecation for contract workers is that you might work for anyone, c) he refused to acknowledge that I work for him? Furthermore, *when* do I need to mention to the new company that this may still be in effect?
posted by notsnot to Work & Money (20 answers total)
I don't have much specific advice right now, but I will say that your location may be relevant in determining some of the specifics (some locales being more employee-friendly, some more employer-friendly).
posted by inigo2 at 1:45 PM on April 11, 2006

I admire your naive honesty. You should completely ignore whatever you may have signed, and make your way as best you can with the new company. It's not enforceable.

You should also call the IRS fraud hotline and tell them your boss is failing to pay employment taxes for people who are in actuality employees. The IRS investigation should put the final nails in your boss' sinking company, freeing you from any further worries on that score.
posted by jellicle at 1:46 PM on April 11, 2006

You need to talk to an employment lawyer in your jurisdiction. I am a lawyer, but not in MO, and employment law is not my specialty. Enforceability of non-compete clauses varies widely from state to state.
posted by ambrosia at 1:47 PM on April 11, 2006

seek professional legal advice.
posted by b1tr0t at 3:42 PM CST on April 11

Ditto. You do not want to get dinged if your current employer decides to take you to court.
posted by 1024x768 at 1:47 PM on April 11, 2006

Best answer: You should also call the IRS fraud hotline and tell them your boss is failing to pay employment taxes for people who are in actuality employees.

Alternatively, keep this in your back pocket in case he threatens to sue. It sounds like he'd be on shaky legal ground to begin with, and he probably won't try anything.
posted by knave at 1:53 PM on April 11, 2006

There are enormous state-to-state variations in enforceability of non-competes. California, for example, does not permit them at all. New York has stringent restrictions, etc. Where are you (and is there a choice of law clause in your non-compete)? Maybe we can help.
posted by The Bellman at 2:05 PM on April 11, 2006

Response by poster: I hadn't thought about the IRS thing being an ace in the hole. Thanks!
When I signed the contrat, there had been some shuffling in a couple other local companies which spooked my boss. I signed it not out of any pity, per se, but definitely in good faith.
posted by notsnot at 2:06 PM on April 11, 2006

Response by poster: I'm in Missouri; the contract excludes me from all of Missouri and Illinois.
posted by notsnot at 2:07 PM on April 11, 2006

IANAL. In the Canadian context, these clauses are generally only enforcable if there is direct financial impact, such as when a salesperson brings customers with him to the new company. Even then, there is usually a limit on how broad the restriction can be; regional companies cannot prevent someone from working for a similar compnay in another province.

It sounds like a small company: do you really think your boss would spend a large amount of money to sue you? That's the real question. If he's unlikely to bother, go ahead.

And get real advice.
posted by GuyZero at 2:11 PM on April 11, 2006

All of MO and IL may not be a reasonable regional limitation, depending upon the field of business.

However, if your boss has already cut your hours significantly, you should discuss it with him. He may let you out of the noncompete voluntarily. Although you may not have the money to fight a legal battle, it doesn't sound like he does either. And I wouldn't make threats about calling the IRS, either, until you are moments away from filing the lawsuit.

Seriously, though, you need a real lawyer.
posted by MrZero at 2:14 PM on April 11, 2006

I believe that, at least in many states, a non-compete cannot be held to prevent you from working. In other words, if you have a non-compete that bars you from working for Bigco, but Bigco is really the only company you can find a job with in your field, your non-compete won't stand up in court. They can't even make you work at Starbucks for two years; you have something of a right to continue to make a similar sort of salary to the one you were making at the old job, doing the same sort of work.

That doesn't mean your former boss can't sue you, of course. In America, anyone can sue anybody for anything. But he is a good deal less likely to do it if he knows he probably won't win; he'd have to be willing to do it just to hassle you. Assuming he finds out, of course.

That said, yes, get some legal advice.
posted by kindall at 2:17 PM on April 11, 2006

At the risk of going out on a tangent, b1tr0t, California generally will not enforce a broad no-compete clause. To survive legal challenge, it must be very carefully and narrowly drawn. What notsnot describes, in terms of its scope, would likely be unenforceable in California.

notsnot really needs to sit down with a local employment lawyer. It sounds as if there are a number of possible avenues to explore, but I'm not your lawyer.
posted by ambrosia at 2:18 PM on April 11, 2006

Best answer: Non-Compete Agreements -- An Overview by William M. Corrigan, Jr. {this article is 8 years old, so things may have changed}.

Synopsis: Missouri courts enforce non-compete agreements to protect an employer from unfair competition by a former employee. However, a court will not enforce such a covenant merely to protect the former employer from competition. The enforcement of non-compete agreements is carefully restricted. They are enforceable only if a legitimate protectable interest of the employer is served.
posted by ND¢ at 2:20 PM on April 11, 2006

Best answer: IANAL. The non-compete is moot until you have a written offer of employment from this other company. At that point, you are usually required to disclose any previous non-competes and NDAs that are still "in force". (pretend your non-compete is "in force" for the purpose of this discussion). At that point, the company may or may not call in counsel to advise (they want to get sued even less than you do). You may be able to leech onto their legal counsel. I personally would investigate what future employer would be willing to do for me if I was taking a risk by working at their company.
posted by crazycanuck at 2:26 PM on April 11, 2006

IANAL. In Canada, these non-competes are generally not enforced unless there's a very obvious and direct financial impact, as noted above. An employment lawyer once told me that these non-competes tend not to be enforced because they interfere with a person's right to earn a living. If your experience is in a particular field and you wish to earn a living in a particular region (having established your life there), then the employer can't really sue you for getting a job doing much the same thing. The NDA should cover any privacy stuff. Again, IANAL and you should get a 10-minute consult with a lawyer.
posted by acoutu at 2:28 PM on April 11, 2006

b1tr0t: Sure! The California law that prohibits non-competes is California Business and Professions Code Section 16600 (aka Section 16600) and it's well known to lawyers (like myself) who advise clients in the technology industry. California courts interpret it broadly to mean exactly what it says, and thus within California it prohibits essentially all non-compete agreements., with the exceptions set out in Section 16601 (on that same page).

Other states interpreting California law have come to other conclusions, but California really hates non-competes and even asking for one can be considered grounds for voiding an agreement as against public policy. A good article on the subject can be found here, but it's not relevant to the poster since he's not in CA.
posted by The Bellman at 2:40 PM on April 11, 2006

Obviously if you need legal advice, get it. But I asked a lawyer about non-compete, non-disclosure agreements at my two last regular jobs, in MA and NY. Both times I was told that they would almost certainly be unenforceable, because they were so restrictive that I would have had difficulty finding a job in my field. I don't think that employers can generally prevent you from finding work after you leave a company.

Of course it would be a different thing if I were taking clients or proprietary stuff with me, and IANAL and all that.
posted by lackutrol at 4:35 PM on April 11, 2006

Response by poster: The clients at the old company are usually one-time clients for a specific project, not ongoing. And as for proprietary information, there is none. I have never been told what *anything* is sold for; I don't even know what my hourly rate is billed at for repairs. And equipment configuration details could be copied just by measuring the equipment, nothing special there.
posted by notsnot at 4:51 PM on April 11, 2006

IANA Missouri L... but the whole issue of whether the non-comp clause would be enforced or not may be beside the point. The issue isn't that you signed it under duress - it's that there isn't any consideration.

Contracts can't be unilateral - if you're giving up something, you have to get something in return. In this case, you gave up your right to work for competitors for... not being fired? Where I am at least, promising not to fire someone is not enough to allow the employer to change the terms of employment.
posted by magwich at 6:53 PM on April 11, 2006

Score, magwich.
posted by Goofyy at 8:56 AM on April 12, 2006

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