There are several things courts look at when deciding if a noncompete clause is enforceable.
Emily Francis recently landed a contract gig as an assistant with an established photography studio in Seattle. On her second day of work, she also got a bunch of paperwork: a tax form, a confidentiality agreement and a document with a noncompete clause that would prohibit her from working for any of the studio’s clients for two years after termination.
Francis, who didn’t want to use her real name, felt stuck. If she didn’t sign it, she wouldn’t get more work from the studio. If she did, her hands would be tied.
“It feels a bit like someone is asking me to be monogamous after one coffee date, while they sleep with whomever they wish,” she said at the time she was deliberating about whether to sign the noncompete.
Is this legal in the state of Washington? Absolutely, says D. Jill Pugh, a Seattle attorney specializing in employment law. “You’d be shocked at how many people think [noncompetes] aren’t legal,” she says. “People think it’s un-American that they could be restricted from working.”
Still, there are some things that the courts look at when deciding if one is enforceable. First, says Pugh, is whether the employer has a “protectable” interest — actual secret or proprietary stuff, unique to the employer, that the employee had access to.
Earlier this month, Amazon sued a former executive from its cloud computing division for leaving to go work in a similar position at Google. In its suit, Amazon claimed that the employee, Zoltan Szabadi, violated his noncompete agreement, in which he agreed not to share trade secrets and confidential information. Szabadi’s attorney responded that his client would use general knowledge in his new position, not top-secret Amazon stuff.
Szabadi’s noncompete also stated that he could not work for a competitor for 18 months after his termination, which is another prong of the enforceability test: Is the time constraint reasonable? Pugh says that the court usually “won’t blink at one to two years, if [the noncompete] is otherwise reasonable.”
Finally, is the geographic restraint reasonable? For example, if a hair salon restricts a former stylist from working in Western Washington, is that reasonable, or does it unnecessarily prevent the employee from working at all?
Sometimes, employees are asked to sign a noncompete agreement when they are already employed. That happened to Shana Seifert, who had been working for Sentinelle Medical for two years when she and all of her co-workers were presented with noncompetes. Not long after, Sentinelle, which made medical software, was acquired by Massachusetts-based Hologic.
Seifert figures Sentinelle was worried everyone would jump ship after the acquisition. “The new company wanted us all in place, because otherwise, who’s going to sell the product?” she says.
So-called midstream noncompetes can be enforced — but according to the Washington State Supreme Court, the employee has to be given something in exchange for signing. “If [Seifert] didn’t get anything, like a raise or a bonus, I’d argue that her noncompete wasn’t enforceable,” says Pugh.
If you’ve been fired or laid off, add this to your list of woes: As a general rule, says Pugh, your noncompete can still apply. The only exception: If the employer breaches its responsibility and doesn’t pay you, or if something else illegal is going on.
So what about Francis and her monogamy-seeking photo studio? She ultimately decided to sign the document, though Pugh says employers of contractors usually use confidentiality agreements, or nonsolicit agreements, which prevent the contractor from poaching clients or employees.
“To tie their hands [with a noncompete] makes it look like they’re not really a contractor, they’re an employee. And as such, it’s not really enforceable,” says Pugh.
In any case, experts say it’s best to consult an attorney before signing anything that can limit future employment.