Navigating non-compete agreements

As the job market continues to improve, more employees are considering leaving their current firms for greener pastures. According to MarketWatch, staff members who may have remained loyal throughout the recession now have the opportunity to look for better pay with a different company. However, an executive who has been contacted by a search firm that offers a better position may need to consider whether or not he or she signed a non-compete agreement before taking a new role.

MarketWatch reported that employment attorneys have noticed an uptick in court cases related to these documents as the market has grown stronger. While there are no solid numbers relating to the prevalence of non-compete agreements, the source noted that they are becoming increasingly common for executives in numerous industries.

“They are a part of the process and are open to interpretation by the hiring company – best to disclose and review early so as not to waste anyone’s time,” said Dave Winston, managing partner at Caldwell Partners.

However, The Wall Street Journal recently stated that many companies are less strict when it comes to enforcing the terms of a non-compete agreement. The source pointed to Ned Brody, head of a major ad sales division of AOL, who quit in April with plans to move to Yahoo. His contract with AOL prevented him from working with a competitor until June 2014, and the company threatened to sue. However, AOL and Yahoo are reaching a compromise that would allow him to transition to the new position.

The Wall Street Journal said that this loosening of restrictions is reflective of a growing trend in non-compete agreements, and could be due to the fact that sensitive information has a shorter shelf life than it once did.

That said, unless a candidate lives in a state such as California, where non-compete documents are all but illegal, there’s still a chance that he or she will be asked to sign one at some point during his or her career. In this situation, according to Fortune, employees can always ask to have the time period of a non-compete shortened, though many businesses won’t consider this.

“If you’re a real star in your field, and can point to multiple competing job offers, you might have some leverage,” Eric Broutman, an employment attorney at New York City-based law firm Abrams Fensterman, told the source. “But 99% of the time, people really have no bargaining power so, if they want the job, they just sign.”

Instead, the magazine suggested that the time for executives to negotiate the terms of non-competes is actually when they’re on their way out.

“The negotiation process doesn’t start when you join the company,” Broutman said. “It starts when you want to quit.”

But why is this the case?

“If [non-compete agreements are] enforced by the current employer, essentially, they’ve retained what is now a disgruntled employee,” explained Caldwell’s Michael DeCosta.

For firms interested in onboarding executives who have non-compete agreements, it’s important for them to conduct their own legal reviews to determine the associated risk. While the individual circumstances may vary, it’s important to know what they’re getting into.

About Caldwell Partners

Caldwell Partners is a leading international provider of executive search and has been for more than 40 years. As one of the world’s most trusted advisors in executive search, the firm has a sterling reputation built on successful searches for boards, chief and senior executives, and selected functional experts. With offices and partners across North America and in London, the firm takes pride in delivering an unmatched level of service and expertise to its clients.

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