4 Things to Consider Before You Sign a Non-Compete Agreement

If you’re like thousands of American workers, your current employer or a prospective boss may have approached you and asked you to sign a non-competition agreement. These are contracts where you promise that if your job ever ends, you won’t work for a competitor for some period of time afterward – usually up to a year. Many people get handed one of these, and the boss says casually, “I need you to sign this,” and acts like it’s no big deal. 

A job is like a marriage in more ways than one, and signing a non-compete without really thinking about it is like entering into a prenuptial agreement where you agree to give away everything you own and to have no romantic relationship for a year once the marriage is legally over. No one gets married thinking that the union will end (or at least most people don’t), and most workers start a new job position with the rosy outlook that they will be with this employer happily and indefinitely. However, most of us understand that a good percentage of marriages don’t survive, and everyone knows someone who has unexpectedly lost a job. 

What employees often don’t consider is that the details of a non-compete are incredibly important to their future economic well-being. The vast majority of non-compete agreements survive if an employer terminates an employee, so the employee can be prohibited from working for a competitor in a fairly large geographic area for a year or longer (depending on the jurisdiction) even if they just got fired. That gives the employer a vast amount of unchecked power – an employee can no longer negotiate for better pay or conditions nearly as effectively, since they may have legally prevented themselves from going to another employer. In some regions or types of industries, non-competes may mean that someone  must move to be employable. If your employer asks you (or tries to pressure you) to sign one of these, keep these four things in mind:

You would not make a major life decision on the spot the minute someone first approached you, and make no mistake – signing a non-compete should be considered equivalent to some of your most important financial decisions. If your employer seems cross that you won’t sign it right away, that should give you even MORE pause about signing it. What is to stop that employer from firing you in the future and preventing you from finding another job in the industry? You need time to consider exactly what the agreement says: What does or does it not prohibit, does it still apply if you are fired or laid off, and where and when it limits you from working. Politely, you need to insist that you have adequate time to consider the agreement.

Even if you love your employer, even if you have been working with this boss forever, contemplate that life and jobs can change at the drop of a hat. What are the ways in which either you or this employer could become dissatisfied with one another? If you can’t imagine that, you aren’t being realistic or honest with yourself. Gone are the times when workers stayed for an entire career with one employer. It’s the nature of the economy. If you do stop working at your current employer, what are your prospects for other work? Where else would you go? Do the provisions of the non-compete unacceptably limit your other options for work, or are they manageable? Are you 30 years from retirement or one year from retirement? 

This may seem like a shameless plug for paying an attorney, but I don’t care if you see one of my competitors instead. Just PLEASE see a lawyer BEFORE you sign. If you are too cheap to pay for professional help before you’ve legally committed yourself to a binding non-compete contract, at least talk through the consequences with a trusted, neutral friend before you blindly sign this important contract. The amount of income you could potentially lose if things go south at your employer well exceeds your investment of time and money before signing. 

This is something you should make time to do anyway for a lot of reasons, but if you don’t know what your goals are, what your other career options are, what your income potential is, and so forth, you are doing yourself a disservice. You can’t evaluate the pros and cons of signing a non-compete – i.e., how badly you need this job, what your alternatives would be if you had to be bound by a non-compete after leaving the job, what the possibilities of worst-case scenarios are, if you don’t have the answers to these larger questions about your job opportunities. 

All of this isn’t to say that you should never sign a non-compete agreement – sometimes it makes sense when you consider all of the facts. But you need to at least undertake the consideration and not sign blindly. 

Remember that being a loyal employee does not mean that you should not also look out for yourself, your own family, and your future financial security.