Should you ask to see job a candidate’s noncompete?

Companies frequently ask whether they should review a job candidate’s noncompete and other restrictive covenants.

The answer is yes. (If you agree, you can stop here.)

Sticking your head in the sand and ignoring a job candidate’s obligations does not make them go away. Worse, willful ignorance can exacerbate the situation.

Quite simply, if someone takes a job in violation of contractual obligations, the former employer will be more likely to enforce its rights, the employee will face the prospect of litigation and being put out of work, the hiring company will also face the prospect of litigation and potential liability, and the entire process will involve significant disruption, distraction, and needless expense.

Further, ignoring legitimate post-employment obligations (whether contractual or simply imposed by law) may cause a court to doubt the commitment of the hiring company and the employee to safeguard the former employer’s trade secrets and other legitimate business interests. It can quite literally mean the difference between winning and losing a TRO or preliminary injunction hearing at the outset of the case.

In contrast to the parade of horribles, a review a candidate’s restrictive covenants enables companies (and employees) to:

  • understand the scope and applicability of the purported restrictions;
  • assess the enforceability of the restrictions in light of the ever changing legal landscape; and
  • carefully develop a strategy for how to navigate the situation.

To be in a position to that, you need to review all of the potentially applicable covenants, including each of the following:

  • notice requirements (i.e., “true” garden leave clauses);
  • noncompetes (including noncompetes for which the employee is paid during the restricted period, sometimes called “garden leave” clauses);
  • nonsolicitation (of customer) agreements;
  • no-recruit agreements (i.e., nonsolicitation of former colleagues);
  • confidentiality agreements (a.k.a. nondisclosure agreements); and
  • other agreements, such as no-service agreements, noninterference agreements, no-hire agreements, forfeiture-for-competition agreements, springing noncompetes, etc.

What if the candidate says that they do not have restrictive covenants?

It’s important to recognize that people sometimes report that they do not have restrictive covenants.

There are many possible reasons for this. It may be because they in fact don’t have any, though it’s unusual for employees to not have even a confidentiality agreement. More commonly, it’s because they simply do not recall signing one or didn’t realize that they had signed one. (Sometimes, albeit rarely in my experience, it’s because they think their covenants are unenforceable or that no one will find out what they are doing, or they are simply lying.)

It’s also important to recognize that employees sometimes report that they do have restrictive covenants (in particular noncompetes), when in fact they do not. There is a significant amount of confusion about the difference between noncompetes and other covenants. Indeed, even the California legislature, in its new noncompete law, uses “noncompete” to refer to noncompetes and, it seems, nonsolicitation agreements and other covenants.

Because of those possibilities, it is advisable to encourage job candidates to think through all of the many types of places restrictive covenants may appear. Common locations include the following:

  • offer letters;
  • employment agreements;
  • restrictive covenant agreements (which often have many different names);
  • incentive compensation awards and agreements;
  • equity agreements and awards (e.g., restricted stock unit agreements, option agreements, etc.);
  • promotion letters;
  • retention agreements;
  • retirement plans;
  • separation agreements; and
  • other agreements, such as consulting agreements, partnership agreements, and M&A agreements.

Strategies

Once you have the documents, you can properly determine your strategy, which may be:

  • moving forward without a problem, realizing that there are no restrictive covenants (or other obligations) that prohibit or restrict the anticipated employment relationship;
  • complying (fully or partially) with the restrictions (e.g., walling off the employee from certain activities or products and establishing guardrails for ensuring compliance with the restrictions);
  • working with the soon-to-be former employer to narrow the scope of the restrictions; or
  • ignoring the restrictions altogether.

In most instances, parties are able to negotiate restrictions that provide reasonable protections to the former employer’s legitimate business interests, while permitting the employee to work in a role that provides value to both the new employer and the employee.

So, get your head out of the sand, open your eyes to your risks, and avoid creating unnecessary problems for yourself, your candidates, and former employers.

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