Handling Applicants with Noncompete Agreements

​It's not unlikely for job candidates, particularly those in highly competitive industries or in sales, to have noncompete agreements with their current company. These agreements are often said to be tough to enforce, depending on the job market, yet they are used by companies to discourage employees in key positions from taking their knowledge and expertise to a competitor.

Roughly half of establishments (49.4 percent) indicate that at least some of their employees were required to enter into a noncompete agreement, according to the Economic Policy Institute, based on data from a national survey of private-sector U.S. businesses. The institute indicated that "somewhere between 27.8 percent and 46.5 percent of private-sector workers are subject to noncompetes."

Noncompetes for candidates in sales, freight brokerages and several other roles are commonplace, said Kelly Garland, president of Garland Source, an executive recruitment firm for the transportation industry based in Fayetteville, Ark.

Employers are also understandably concerned when top candidates may have signed a noncompete agreement with the company they're currently working for. Making an offer to a top candidate only to find that they're bound by such an agreement can be costly both in terms of the time already spent with the candidate in the recruitment process and the cost that might be involved in attempting to prove the agreement is unenforceable, or to negotiate different requirements.

[SHRM members-only HR Q&A: Can an employer make noncompete and confidentiality agreements a condition of employment for current employees?]

The Enforceability of Noncompete Agreements

"Every state has its own specific laws about whether and to what extent a noncompete agreement is enforceable," said David Reischer, an attorney and CEO of LegalAdvice.com. "Courts have come to recognize that noncompete clauses tend to be burdensome on employees' ability to pursue a livelihood.
But he added that "with the general exception of California, most states will enforce a noncompete clause under specified circumstances."

One of the reasons noncompete agreements may be successfully challenged is if their requirements are considered too broad or unreasonable.

"I've seen some employers attempt to restrict their employees' outside work for up to seven years after they leave a company, but I've also seen companies dial it back a few years to keep new talent on board," said Charlette Beasley, the careers and workplace analyst at FitSmallBusiness.com.

In most cases, noncompete clauses must be deemed "reasonable" to be enforced, Reischer said. "Whether the scope of the restraint is too broad or too narrow will typically affect the enforceability of the noncompete clause. If the restraint is specifically defined, it will generally be much easier to enforce than if the restraint is ambiguously stated." Seven years is likely to be considered an exceptionally long time frame, he said.

Noncompete Agreements and the Recruitment Process

It's important for recruiters to know whether top candidates might be bound by a noncompete agreement, Garland said. "If the candidate works for a company known to pursue noncompetes or works in a role that often has one, I ask the candidate during my first phone screen about any noncompetes or restrictions," he said. He will also try to obtain a copy of the agreement for his records.

"What is shocking to me is how many people don't have a copy of their noncompete, and, of course, they are reluctant to ask HR for a copy during an interview process," he added.

Garland advises his client companies when he submits a resume about whether the candidate has a noncompete agreement. "I don't want to waste anyone's time, whether it is a candidate with a noncompete or a client that will require one," he said. "It's best to cover [it] early in the process."  

A critical question then becomes whether, if the candidate rises to the offer stage, the noncompete agreement will be enforceable.

When a Top Candidate Has Signed a Noncompete

It can be tough to get companies with a noncompete agreement to "abandon them altogether," Beasley said. "However, you can negotiate the terms."

Garland said that, in his experience, he has seen companies' litigation with regard to noncompete agreements applied unevenly. Their approach, he said, is impacted by a number of factors, including the state the employee resides in; the nature of the competition with the company and whether there is enough difference in business models to be a factor; what the candidate's new role will be; the candidate's relationships with owners or managers; and the company's experience in past litigation.

"In most cases, the potential new company will have an attorney review noncompete agreements prior to making an offer," he said. "Sometimes the new company provides legal support and engages their own legal team to defend the candidate after being hired." But, he added, "frequently the candidate is on their own and sometimes may lose their new job if things don't go well."

Over the years, Garland said he has seen many candidates walk away from a potential great job because a noncompete was required. He has also seen "companies passing on a candidate to avoid any legal issues, even if the candidate has been told [the noncompete] likely won't hold up," he said.

Should Your Company Require a Noncompete Agreement for Key Positions?

Job seekers are understandably hesitant to sign over their rights to work with their employer's competitors, Beasley said. Some companies "tend to slide the documents in with new-hire paperwork—without making it seem like a big deal," she said. In industries like pharmaceuticals and biotech, noncompete agreements tend to be commonplace and "recruiters and interviewers are sometimes more forthright."

Employers should think carefully about the need to require a noncompete agreement and its potential impact on the employer/employee relationship.

Lin Grensing-Pophal is a freelance writer in Chippewa Falls, Wis.