If you haven’t yet had this sinking feeling, the odds are someday you will. One of your top employees is leaving. To go to a competitor. With no notice. The employee is at-will. You figure: How can s/he do this? We made him/her sign a noncompete. To prepare for your call to your lawyer, you go to the file. There it is – the noncompete. But wait – something’s missing. You’re looking at the last page, you see the line for the employee’s signature, and – nothing. It’s blank.
Now comes the sinking feeling. “Why bother calling our lawyer? We screwed up, we didn’t get him to sign, we’re outta luck.” Not so fast. Yes, you screwed up, but you may not be out of luck. Call your lawyer. Why?
Signing the noncompete is best way to show that the employee accepted the noncompete as a part of the job, but it’s not the only way. For example, in a matter I recently handled, the client sent an applicant an offer letter that attached a noncompete agreement and said the noncompete was required. The applicant accepted the offer and worked for the client for 21 months. During that time, the employee enjoyed all of the terms and conditions of employment laid out in the offer letter – the salary, the bonuses, the benefits. When the employee left to work for a competitor, we sent the unsigned noncompete to the new employer. We cited a case in which the court enforced an unsigned noncompete because the employee was deemed to have accepted the noncompete when the employee accepted all of the other terms of employment, which included the noncompete. In my case, we told the competing employer, “We’ll see you in court on Tuesday,” and on Tuesday morning the competing employer called to say it was terminating our former employee’s employment – better than an injunction.
Lessons learned? I count three. First, unsigned doesn’t mean unenforceable. If you can show that you gave the employee the noncompete, that you said it is a term of employment, and that the employee did not object, then in at least some jurisdictions you’ll have a serious argument that the employee accepted the noncompete.
Second, unsigned is a problem – don’t kid yourself. Asking a judge to enforce a noncompete is asking a judge to fire an employee, or at least to substantially restrict a person’s employment. Judges take this seriously. In the rough justice of an injunction hearing, when things move quickly and arguments must be succinct, you don’t want to have to tell the judge that it’s important to your organization that the court fire this employee, but it wasn’t important enough for the company to follow up to ensure that the employee signed the noncompete.
Third, ask the right question when you’re bringing in someone from another company. In my case, the opposing lawyer told me that the competing employer asked our former employee: “Did you sign a noncompete with your last company?” Our former employee answered “No,” thereby answering truthfully while avoiding the truth. When you’re asking the questions, be sure to elicit all of the information you’ll need to properly assess whether the candidate you’re talking to is subject to any enforceable restrictions. “Did any former employer give you a noncompete agreement” is a different, and better, question than “Did you sign a noncompete?” Had the competing employer in my case asked the broader question, it would have been spared from hiring and then firing this employee.