Non-compete agreements are becoming increasingly popular in the present climate of low unemployment, globalization and increased competitiveness. Unfortunately, there are no general rules that apply to non-competes, and each contract is different. In light of this we have put together some basic answers to the sticky questions they pose. To better illustrate what flies and what doesn't, we have asked questions in the context of one scenario about Joe, a Webmaster for an online bookseller. The trick about non-competes is not to worry about them, but to be practical and avoid appearing like an ex-employee who has used the advantages of your former employer's trade secrets. Money spent ahead of time on a lawyer's advice about the interpretation of the non-compete is money well spent. Additionally, when you leave your job, try to work for an employer who is not a direct competitor.

Non-Compete Scenario

Joe works as a Webmaster for a large online bookseller. He is allowed access to a lot of information that is not available to the public (i.e., He knows the type of software that the company uses and has access to strategy decisions regarding sales and marketing plans.). He even knows his company's strategy to compete with another major online seller. Here's the rub: Joe is unhappy and wants to change jobs, but he signed a non-compete clause when he took the job. Because the company was a start-up and Joe was a valuable employee, Joe received some stock options. (Note that an option is "consideration" for signing on with a company. An employer will often use options to get someone to sign a non-compete. The law requires something gained -- options or other benefits, high salary, etc. -- for something given up, in return for signing the agreement. Joe's non-compete clause states that he is prevented from working for any online booksellers or any companies that "directly compete" with his employer. Joe will lose his stock options if he breaches his non-compete clause. Joe's employer has a right to seek a court injunction and recover the legal fees and costs associated with suing Joe.

Joe's best prospects of employment are to apply for jobs with his employer's direct competitor. Is Joe stuck? What can Joe do? If you find yourself in the same situation as Joe, here are some answers to questions frequently asked non-compete clauses

Q. What is a non-compete clause?

A. A non-compete clause can be: a) a paragraph contained in an employment agreement, or b) a separate agreement. It usually tries to prevent former employees from working for competitors of the employer for a specified period of time.

Q. Are non-compete clauses legal?

A. Yes. It is legal in many states to require certain employees to sign non-compete clauses. But sometimes the non-compete clauses that employees are forced to sign are not considered legally enforceable by the court.

Q. How do I know if my non-compete clause is enforceable?

A. The best way to know if the non-compete clause that you signed is enforceable is to consult with an attorney who has experience with employment law or business law. One referral source for finding employment lawyers is the National Employment Lawyers Association.

Generally, courts in all states will enforce clauses that are reasonable and will not enforce clauses that are unreasonable. Certain factors determine if the clause is reasonable, such as the nature of the job -- the more senior the job, or the closer the person was to trade secrets, the more likely the clause will be considered enforceable. Other factors that affect its enforceability include: the time period that you are prevented from working with a competitor and whether the clause specifically prevents you from working in a specialized area where you can give a competitor the advantage over your former employer.

What does this mean for Joe?

In Joe's case, it is very likely that the non-competition clause he signed would be considered enforceable. Joe was a senior employee with access to inside strategic information that could damage his employer if the information landed in the hands of a competitor. It is highly likely that his former employer would sue Joe and his new employer if he goes to work for the other major online bookseller. It is also very likely that his former employer would sue to stop Joe from working for the competitor, take back Joe's stock options and sue Joe for their legal fees and costs.

Q. I'm unhappy at my job and my best prospects are in the same industry. Since I signed a non-compete clause, does this mean that I can't work in my field?

A. Not necessarily. You may be able to get another job in the same industry -- even the same type of job without violating the clause. Make sure you understand what the clause really means before you start job hunting. Get the advice of a lawyer about what kinds of companies would be considered competitors and what types would not.

In the example of Joe, he has many options despite the fact that he is prevented from working for his employer's major competitor. Joe could find the same work for a number of other online retailers, including a major online toy store, for example.

Q. I haven't signed the clause yet. If I do not sign the clause, can they refuse to hire me?

A. Generally, yes. An employer can make it a condition of hiring you. But before you panic, take the clause to an attorney to see if it is enforceable and get advice from your attorney about what companies you may be able to work for without violating the clause.

Q. I just had a great job offer by a big company in the same industry as my current employer. Do I break the news that I signed a non-compete clause? Does this mean that the company will renege on their offer?

A. Be honest and let the company know that you have signed the non-compete agreement. If you don't, your new employer may find out the hard way -- from being sued by your former employer. If that happens, you could lose the new job anyway. Your new employer may consider your failure to inform them a falsification of your employment application.

Keep in mind that in these situations timing is everything. Before you tell, make sure that the company is extremely interested in hiring you. If your new boss is anxious to hire you, you may stand a greater chance of overcoming the non-compete. First, consult a lawyer about what the clause means. Make sure that working at the new company would not violate the clause and when you are ready to accept the offer, you can let the company know about the non-compete clause and explain the reasons that the clause will not apply.

Q. If I tell a prospective employer I have a non-compete agreement with my current employer will I lose out on the job I want?

A. Not necessarily. Consider the fact that non-compete clauses are becoming more common -- especially in the computer industry. Employers know that many qualified candidates come to them having signed non-compete clauses. To hire the best candidates and to avoid litigation, some employers will negotiate with the former employer to find a way for candidate to work for them. You should deal directly with your former employer to avoid a lawsuit. Once the employer is satisfied that you won't use inside information to compete, they are a lot less likely to sue to enforce your non-compete clause. Since non-compete clauses are becoming more common, more employers are open to taking this step to avoid litigation.

In Joe's case, Joe will have problems if he worked for his former employer's direct competitor. However, Joe has gotten advice from a lawyer and is confident that he can accept an offer from an online toy retailer. Joe meets with his new boss and makes a good impression on his prospective new employer. Joe did not tell his interviewers about his non-compete agreement initially. He informs them of the agreement when he accepts their offer. He also provides the new employer with information from his lawyer concerning why he is able to take the new job without violating the clause.