Non-compete Agreements under "at will" employment

pak20193 · December 2003

Is a conflict created when a new employee is asked to sign a non-compete agreement as an "at will" employee? Does the employer create a contract by virtue of stating the consideration for the non-compete is the promise to employ?

Don D · December 2003

Aha pak20193. A gold star to you for the question of the month! I look forward to a legal opinion on this one. Very interesting.

Balloonman · December 2003

My answer would be NO. I have certain groups of employees sign them all the time.
My $0.02 worth.
DJ The Balloonman

vmiller MO · December 2003

The issue really is not whether a non-compete agreement changes the at-will employment arrangement. It is whether the non-compete is valid and/or enforceable.

Generally, non-competes do not set forth a definite (fix) time period of employment. Without a fixed time period for employment, i.e., 1 year, 2 years, etc., the employment is at-will unless you are in a state that recognizes the covenant of good faith and fair dealing or the implied contract theory that recognizes handbooks to be contracts.

Non-competes usually state that the employee cannot compete during the time the employee is employed by employer and for a certain time period post employment. Thus, by its terms, the non-compete does not alter the time period of the employment.

Non-competes, however, generally have to by reasonable in time and scope and the employer must have a protectable interest. These concepts vary from state to state. There is an emerging consensus among the states that the non-compete can be defeated if the employer breaches the employment contract, even if the contract is "at-will." Thus, more and more courts are carefully looking at those situations in which the employer discharges or lays off the employee and then tries to enforce the non-compete. It is becoming more difficult to do so.

Further, there are certain states, such as California, that do not allow non-compete agreements as a mater of public policy.

As you can see, the issue of the enforceability of non-competes is legally complicated and state specific. It is vitally important that you consult your legal counsel before entering into non-competes with employees.

Vance Miller
Editor, Missouri Employment Law Letter
Armstrong Teasdale LLP
(314) 621-5070
[email]vmiller@armstrongteasdale.com[/email]

pak20193 · December 2003

Your response is very helpful. Thank you very much!

scottorr · December 2003

I definately agree with Vance. Now a days, non-competes, in a number of state, are not enforceable. We do not even bother waisting our time with them any more.

jimlegal · December 2003

Employers seek to effectively circumvent the non-compete issues during employment through anti-"moonlighting" policies. Unlike non-compete agreements typically "moonlighting" policies are not governed by statute, are not limited to a geographical area, are not limited to a specific job and are not limited in time. However they usually do not survive past the departure of the employee. Moonlighting policies usually are unilateral policies of the employer, put in place by the employer, leaving the employee on a pretty much take it or leave it basis. Moonlighting policies will assist the employer during the employment period, however after the employment period is another story. After the employment period a covenant not to compete would typically be used. You may have a covenant not to compete in certain states without altering the "at-will" employment relationship.

This area of law is state specific and has some specific nuances. Please check with your company's employment attorney before taking steps in this area.

That's my two cents.... Jim

Carey · January 2004

And of course in California, an anti-moonlighting policy is not legal because the employer cannot try to control employees' activity outside of work (as long as it's legal). We only address outside employment in terms of conflict of interest.

System · December 2003

As Vance said, non-compete law varies from state to state. Since you're in MD, we asked Kevin McCormick, editor of Maryland Employment Law Letter. Here's his response:

"The question raises a very interesting question in light of a very recent decision from the Md Ct of Appeals (which was reported in our December '03 issue) about the need for consideration to support any contract, i.e. an agreement to arbitrate all claims.

"The court found that continued employment was not enough consideration to support the agreement. That logic calls into question whether a promise to employ, on an at-will basis, would be sufficient. Interesting."

So it seems the law is even more muddled in MD than elsewhere. Kevin is at (410) 347-8779, [email]kmccormick@wtplaw.com[/email] .

Info about Kevin, Vance, and all of our attorney-editors (like big Forum profiles): [url]http://www.hrhero.com/necn[/url]

James Sokolowski
HRhero.com

pak20193 · January 2004

The information you were able to obtain from Mr. McCormick is very helpful, although it seems an "answer" will either have to be decided by a court or new legislation.

I have never used this forum before and am very impressed with the level of expertise available.
Thank you very much.

AJ SPHR · January 2004

Also, at least in PA (and perhaps many other states), if you include any non-compete restriction or clause in a severance agreement after an employment relationship has been terminated, the courts only will find it's enforceable for roughly the same period of time that severance pay covers.

In other words, you could have a non-compete agreement for 6 months after termination of employment, provided you were offering 6 months of salary if the ex-employee signs the severance agreement. Just something I learned during some recent reductions we went through here.

CT · January 2004

For the states of Wisconsin and New York specifically, under what circumstances is a non-compete enforceable and when is a confidentiality agreement enforceable and/or an alternative to a non-compete?

jimlegal · January 2004

Enforceability of an Non Compete Agreement or Confidentiality Agreement is most times left for the Court to decide. Your queries present questions beyond the scope of this forum. I strongly suggest that you immediately contact your company's labor and employment attorney to obtain specific legal answers.

Non-compete Agreements under "at will" employment

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