What You Should Know About Non-Compete Agreements in Your Industry

Originally published by Leiza Dolghih.

According to a recent study,* at least one in four workers have signed a non-compete during their work-life, and at least 12% of the U.S. labor force are currently working under one. However, only 10% of the study participants reported bargaining over the terms of their non-compete agreements before signing them.

According to this study, the chances of being bound a non-compete increase with the higher level of education – 9% without college degree v. 27% of those with a graduate degree are bound by a non-compete. They also rise with the increase in salary, with one in three workers making over $100K a year having agreed to a non-compete.  So, if you are an MBA/Ph.D. graduate who makes over $100K, your employment paperwork will most likely have some version of a non-compete clause.

The researchers found that the following occupations tend to have non-compete agreements most frequently:

• Engineering and architecture (30%)
• Computer and mathematical occupations (28%)
• Business and financial (23%)
• Managers (22%)
• Life, Physical & Social Sciences (20%)

Not surprisingly, the study also determined that non-compete agreements are more likely to be signed in states with higher non-compete enforcement policies. Texas is one of such states.

Furthermore, according to the study, the biggest predictor of whether an employee will be asked to sign a non-compete is whether he or she will be working with trade secrets.  About 10-20% of those who work with clients or have access to client-specific information sign non-competes, and about 24-30% of those who have access to trade secrets sign non-compete agreements, regardless of income, education, occupation, industry or firm size.

Out of all the participants in the study, 40% reported that they either did not read their employment contract or read it very quickly and only 8% stated that they consulted with a lawyer before signing one.

TAKEAWAY FOR EMPLOYEES: Employees should not blindly sign their employment paperwork, without carefully reading it first. Understanding whether an employment agreement contains a non-compete clause and what its limitations are, can help employees negotiate the reach and length of the clause, negotiate a higher salary, and/or plan exit strategy for when they want to leave their employer.

TAKEAWAY FOR EMPLOYERS:  Explaining to a potential or a new hire their non-compete restraints before they sign an employment agreement can help create a transparent working relationship and set everybody’s expectations, which leads to employees being more productive.   The above study found that, overall, employees who sign non-compete agreements typically get more training and advancement opportunities.  If that is the case in your organization, pointing that out to an employee how is asked to sign a non-compete may help employee understand that the non-compete agreement is mutually beneficial.

Leiza frequently litigates non-compete and trade secrets lawsuits on behalf of employers and employees in a variety of industries, and knows how such disputes typically play out for both parties. If you need advice regarding your non-compete situation, contact Ms. Dolghih for a confidential consultation at Leiza.Dolghih@GodwinLewis.com or (214) 939-4458.

* The study titled “Noncompetes in the U.S. Labor Force” is authored by Mr. Evan Starr, University of Illinois at Urbana Champaign, School of Labor and Employment Relations and the Department of Economics (estarr@illinois.edu); Mr. Norman Bishara, University of Michigan, Ross School of Business (nbishara@umich.edu); and JJ Prescott, University of Michigan Law School (jprescott@umich.edu).

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