“If tied to an unpaid bonus, is a non-compete enforceable?”

Question: Alan, I signed a non-compete when I started work as a marketing executive at a local company. The non-compete was tied to entering into a bonus plan. They did present me with a bonus plan, but never paid it out.

The employer represented to me that the bonus I would receive had a target of $40,000, or more. They never paid anything, saying that the company did not perform well, but that was not my fault.

Now they want to keep me from working in this entire industry for 12 months. Your thoughts?

Ann Arbor, Michigan

Answer: Dear Joe, As you probably know from reading my articles on non-competes, a significant part of my law practice is in resisting and fighting them. Though the facts and circumstances you describe are limited, I do think they suggest you have two good reasons – perhaps more – to defend your right to work for whoever you please, doing whatever you want, in any place you choose. Here are my thoughts:

1. As I often point out, a non-compete agreement is a kind of contract, and all contracts must be read carefully, that is, word for word, punctuation mark for punctuation mark. Honestly, Joe, I cannot tell from your description of your non-compete agreement, and how it may be “tied to a bonus plan,” whether or not the non-compete is dependent upon the granting of a bonus, and if so, how much of a bonus. I feel like a doctor who is being asked to diagnose an illness, but is not permitted to “examine” the patient. To make such a determination, I would need to “examine” the entire non-compete agreement extremely carefully. I would also have to read the “promise” of the bonus carefully, too. And, too, I would have to read the bonus plan. That is the case for any legal document, but most especially for contracts, of which non-compete agreements are one kind. Judges say it best, “Don’t tell what the document meant to say, just tell what its words are.”

2. If you were promised something – such as a bonus – for signing a non-compete, and the employer never “delivered” what it promised, then the non-compete is void for “failure of consideration.” Imagine, for the moment, that a person named Bob promised to sell a car to a person named Mary for $100, and Mary did not pay the $100. Is Bob still obligated to give Mary the car? Of course not. What if he already delivered the car to her? The law says that Bob can take it back. Mary’s failure to pay Bob the $100 is what us lawyers call that a “failure of consideration.”

If there is a “failure of consideration,” then the other party can either (a) refuse to deliver his or her part of the bargain, or, if already delivered, can (b) demand it back. In a non-compete situation, a non-compete that suffers a “failure of consideration” by the employer would legally permit the employee to declare the non-compete null and void, and of no effect, and work without any future restriction.

3. Also, if the employer promised a certain size bonus, but never really intended to pay out such a certain sized bonus, then your signature on the non-compete agreement may have “fraudulently induced,” that is, you may have been tricked into signing the non-compete agreement. Sometimes employers use the word “bonus,” but really mean “target bonus.” The two are not the same, not by a long shot. Also, sometimes employers say “about $40,000,” and they don’t intend to pay that amount, but instead only $5,000, which they claim is “close to $40,000.” These things, too, would likely make a non-compete null and void, and of no effect.

Bear in mind, though, that what is inside a person’s mind, what lawyers call “intent,” is something that is pretty difficult to prove. It is much easier to prove (a) a promise made, and (b) a failure to “deliver” on that promise, as described above, because the proof of those things are often verifiable by witnesses and documents, while “intent” is often just “between the ears.”

Your dilemma with your non-solicit agreement might be resolved without a “war of letters” or your dismissal from your new employer. What should you do?” The answer is almost always to proactively seek a resolution of your non-compete or non-solicit dilemma with your former employer before a legal dispute arises. We offer a “Model Letter: Proactive Attempt to Prevent a Potential Non-Compete Dispute” that you can adapt for your non-solicit agreement, that shows you “What to Say, and How to Say It.”™ To get your copy, just [click here.] Delivered by Email – Instantly!

4. The first problem you will likely face, though, is that your future employers may not want to hire you unless you promise, in writing, that you are free from such restricing agreements, which you cannot yet do. It is becoming more and more common for employers, when they interview job candidates, or when negotiating over items such as salary, to ask the job candidate “Can you promise us you have not signed any agreement that might limit your ability to do this job for us, if we hire you?” That is how most non-compete agreements are “enforced.” I call it “self-enforcement” of a non-compete agreement.

If you do not tell the truth about having signed a non-compete, and that your former employer may view it as enforceable, your new employers could later conclude that you lied to them, and fire you for dishonesty. Ouch!!

Contemplating a new job, and need to disclose your non-compete? For you we offer a “Model Letter Disclosing Non-Compete to Prospective Employer; Requesting Support If Dispute Arises.” To obtain a copy for your adaptation and use, just [click here.] What to Say, and How to Say It™ Delivered by Email – Instantly! 

5. The second problem you may face is that your former employer may disagree with your view that the non-compete is “null and void,” and may have its lawer send a “Cease and Desist” letter to your new employers, threatening a lawsuit. This is the second problem you face: even if you believe the non-compete is void and unenforceable, your former employer may disagree, and send a letter to your new employer, threatening a lawsuit if they continue to employ you. That could also get you fired from your new job.

Have you received a letter from your former employer’s attorney demanding you “Cease and Desist?” Are you concerned you might receive one? We offer a Model Letter entitled “Response to Attorney’s ‘Cease and Desist’ Letter Alleging Non-Compete Violation.” It shows you “What to Say, and How to Say It.™” To obtain a copy for your adaptation and use, just [click here.] Delivered by Email – Instantly!

6. To get around these potential problems, it would be best to get your former employer’s agreement that the non-compete is null and void. That takes a bit of “navigation and negotiation,” and, fortunately, how to do that is well-explained in our Resource Center newsletters and Q&A’s, YouTube videos, and our Model Letters, including our 185-Point Master Guide and Checklist to Non-Compete’s.

Our 185-Point Master Guide & Checklist to Non-Competition Agreements is a perennial favorite. It takes you step-by-step through everything you need to know. To obtain your copy, just [click here.]

7. If that does not work, your next best step would be to consider consulting or retaining an attorney in your area who is experienced with non-compete agreements. Without intending to offend any of my attorney colleagues, non-compete’s are a kind of specialty, and I would strongly encourage you to consult or retain only an attorney who has real-life experience with non-compete battles – who is able to, yet hopefully reluctant to – go to Court if all else fails.

If you need to locate a good local attorney, your Washtenau County Bar Association has a legal referral service. They can be contacted at 734.994.4912; their website is www.washbar.org.

I hope and expect that, if you need to consult with or retain an attorney, the information available on our blogsite will make you a very “informed and empowered customer.”

Joe, you are in a bit of a sticky wicket that requires some thought and effort to get out of. Don’t lose faith, though, as most people who (a) apply our information and (b) their perseverance usually (c) prevail.

My best to you,
Al Sklover

P.S.: One of our most popular “Ultimate Packages” of forms, letters and checklists is entitled “Ultimate Non-Compete Package” consisting of six Model Letters/Memos for non-compete navigation and negotiation, as well as our 185-Point Non-Compete Guide and Checklist.” To obtain a complete set, just [click here.]

© 2012 Alan L. Sklover, All Rights Reserved.

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