In “Non-Competition,” What Constitutes “Competition?”

Question: I was recently a victim of corporate downsizing, and need to get started with something new. As part of my severance negotiations, I am being asked to sign a “non-competition” agreement. I am 52. I have been in this industry for 10 years. I live in a state (Michigan) where the economy is very poor.

My present employer is predominantly a wholesale distributor of cellular phones. They buy and sell phones, and sometimes make additional revenue by adding value to the phones by loading software onto them in what is called a “re-manufacture” process.

I want to start a business in this industry with another former employee to specialize in only loading software onto cellular phones as a service; we will not buy or sell phones. Our business model is completely different from our employer’s – we will be a service company, while they are a wholesale distributor. In fact, we think that our employer might even become a customer of ours.

Is this difference enough to make the non-competition inapplicable to us? I hope so, because this is my skill set, and without the ability to make money from it, I’m not sure how I’ll feed my family.

Bob, Waterford, Michigan

Answer: Your question, and your plight, are more common than you might think. There are three answers to your question:

(a) First, “review the words.” You must look at the words as they appear in your non-competition agreement. Some agreements are worded narrowly, so that they just cover the same services and same customers, or a narrow list of activities. Some are so broadly worded, they make working in the same industry seem impossible. Do you plan to provide service just to individual retail customers, or are you going to provide the same service to the same wholesale buyers of cell phones, thereby possibly ruining your employer’s chances of adding value and revenue? That would seem to make a difference. (You might want to consult with a local employment attorney on this.)

(b) Second, “asking for agreement.” That is, consider writing what you wrote to me to your employer’s CEO, or Board of Directors. Convince them it’s in their interests or at least convince them it is not going to hurt them, but might even help them. You may need to adjust your plans slightly, but it would be worth an awful lot to get in writing that your hoped-for business activity is not a violation of the non-competition agreement.

People have far greater ability to negotiate and navigate these things than they think they do.

(c) Third, you might want to “ask for forgiveness, not permission.” That is, (1) if you look at the words of the non-competition agreement, and they seem to be a problem, and (2) you ask for permission, and it is denied, you might consider (3) having an attorney “on call,” and opening your own business, anyway. Why? Most judges don’t like non-competition agreements, especially if it would hurt your only way you have to feed your family. Judge’s usually seek a compromise that all can live with. So long as you are not stealing secrets from your employer, and are being honest with the Court, you are usually not denied a way to make a living. (A related course of action would be for your attorney to start a legal action asking a judge to “declare” that you have a right to open your business.)

Some years ago, Michael Bloomberg (New York City’s Mayor) was in your shoes. He was leaving Wall Street, was offered a severance package, but it had a non-competition agreement as part of it. He wanted to open a “business-information” business, selling information to Wall Street firms. He went to his employer, and got both (a) permission, and (b) their decision to invest in his company. Today he has $13 billion in the bank. He is the richest person in New York. His former employer, Merrill Lynch, is in terrible condition. My hopes are you’ll follow in his footsteps.

Hope that’s helpful. If you need a referral to an experienced employment attorney in Michigan, let us know. You truly have my hopes and prayers.

My best to you. Please come back and let us know how things go.

Best, Al Sklover

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