Employees may sign agreements at the beginning, middle, or end of an employment relationship with an employer that may include a non-compete agreement. A non-compete agreement places limitations on how an employee may use the employer’s customers, trade information, or employees in the course of obtaining or continuing an employment relationship with another employer. Non-compete agreements may be signed in exchange for benefits, such as stock grants or as part of a severance agreement at the end of your employment, or they may be signed at some point in the employment relationship as part of a continuing employment relationship. Severance agreements, however, are agreements signed at the end of the employment relationship that extend some form of payment to the departing employee in exchange for certain benefits to the employer, such as signing a non-compete agreement or waiving potential claims against the employer. Assessing these agreements is extremely important because employers often seek agreements that are balanced in their favor to the employee’s disadvantage. Working with an severance attorney to assess and negotiate these agreements can put you in a better position to receive a fair agreement.
Non-compete agreements limit a departing employee from competing directly with the employer. In some states non-compete agreements are difficult to enforce but in Texas they are almost always enforceable. To be enforceable the agreement must meet three requirements:
- Must be ancillary to another enforceable agreement, such as a severance agreement or employment agreement;
- Must be necessary to protect the employer’s legitimate business interests; and
- Must be a reasonable restriction on the activities restrained, duration and geographic scope.
Typically a non-compete agreement will be offered at the end of employment in exchange for severance benefits. Some employers will request the non-compete agreement for executives and technical experts, such as doctors, in exchange for an employment contract or specific benefits such as a stock grant or option to buy in as an owner. An employer cannot enforce a non-compete agreement signed without some other enforceable agreement with it, such as a severance agreement, and an employer cannot require you to sign a non-compete agreement to receive your final paycheck or distribution of a benefit already vested.
A non-compete is also only enforceable when it is necessary to protect an employer’s legitimate business interests. The employer’s legitimate business interests may be very broad. It could be protecting trade secrets, business strategies, future business plans, client lists, or even a limited geographic customer base. For this reason, non-compete agreements are usually only offered to employees with technical expertise, heavy personal contact with clients and executives. Most rank and file employees do not have the high level internal knowledge to compete with the employer or share with a competitor. Nor do they have the influence over clients to convince them to follow them to a competitor.
Non-compete agreements must also be reasonably limited. The employer cannot enforce an agreement that unreasonably limits the employee’s ability to earn a living. The employer can enforce an agreement that prevents the employee from competing in the same geographic market for a certain time period in the same line of business to protect the employer’s customer base and market power. In the modern transnational business environment and internet marketing, the geographic limits may reasonably be global in some cases where the employer is very large or seriously markets products and services through the internet. Not every business with a website can claim global limits.
If you have been offered a non-compete agreement, The Kielich Law Firm can assist you in understanding the terms, determine if the terms are reasonable and help you negotiate more favorable terms. Contact my office today to schedule a consultation.
An employer may offer a severance agreement for many reasons. The employer may offer it in exchange for the employee agreeing to a non-compete agreement. The employer may offer it to entice employees to leave the business voluntarily rather than undergo layoffs. The employer may also offer severance benefits in exchange for an agreement to waive claims and not sue the employer.
It is important to understand both what benefits you are receiving under a severance agreement and what rights you are giving up. Employers like to write severance agreements heavily in their favor. There may be a very broad waiver of rights to sue the employer and a broad non-compete agreement. It is vital that you understand whether you may have any claims against your employer for wages, discrimination, employment benefits, or anything else, before signing a severance agreement. it is also important to understand how it may limit your ability to obtain future employment. You should also understand what benefits you are receiving under the severance agreement. You may be able to negotiate the terms of the severance agreement.
You should not sign a severance agreement until you have had a chance to thoroughly consider the terms and considered whether to consult with an employment attorney to discuss the terms and ramifications. If you are over forty you must be given at least twenty-one days (and in some cases up to forty-five days) to consider the agreement and advised to consult with an attorney. Without these terms in the agreement, any included waiver of rights or claims may be unenforceable.
The Kielich Law Firm can help you understand the terms of the agreement, determine whether the agreement is fair, and help you negotiate a more favorable agreement with your employer. Once you sign the severance agreement, there may not be another opportunity to raise claims you may have against your employer. Contact my office today to schedule a consultation.