An Effective Way to Analyze Your Restrictions
“Limits, like fear, are often an illusion.”
– Michael Jordan
ACTUAL CASE HISTORY: For two weeks we were in a pitched battle in Federal court, trying to convince a Federal Judge to negate a non-competition agreement. Both sides had submitted legal briefs, and the Federal Judge ordered “oral argument,” which is each side giving its position, and the Judge hammering away at each side’s arguments with his questions.
Our client was a salesman in the field of medical devices, specializing in the sale of manufactured, artificial heart valves to hospitals for surgical replacement of damaged valves. After leaving his prior employer, he took a new job, and was doing quite well – until he was sued, and his new employer placed him on “Suspension – Leave of Absence” until the case was over.
In preparation for the upcoming “oral arguments” in perhaps my tenth reading of the non-competition agreement, I discovered something that no one else had discovered before, not even the Judge: the non-competition agreement was not, in fact, a non-competition agreement.
My careful reading revealed that working for a competitor was not, in fact, prohibited. What the supposed non-compete agreement prohibited was “working for a competing medical device manufacturer, anywhere in the eastern half of the United States, that sells to hospitals replacement heart valves based on the same technology.”
That last phrase, those final five words, and their importance, had somehow escaped notice by several people. There was no prohibition against working for a competitor, but only on working for a competitor while selling heart valves based on the same technology. The restriction was on using a certain technology more than it was on working for a competitor.
In fact, the new employer did not sell manufactured, artificial heart valves, but instead heart valves derived from the hearts of pigs. Neither the lawyers nor the Judge were familiar with the technology, and just assumed the same technology was used. Fortunately, I recalled hearing of the distinction during my initial, in-depth consultation with my client.
We asked permission to submit a supplemental brief to the Court on this very point, and the Judge permitted it. After conferring with their client, the former employer’s attorneys withdrew the case. Noticing just five words – based on the same technology – that’s all it took.
LESSON TO LEARN: When it comes to non-competition and non-solicitation agreements, “The answer to your question is almost always right there, in the words.” Reading dense legal agreements can sure put a lot of people to sleep – including lawyers. That’s always the case in law, but there is no substitute for careful reading and analysis, especially when it comes to non-competition agreements and non-solicitation agreements.
I have seen it time and time again: the applicability, effect, validity, and duration of non-competition and non-solicitation agreements being misread and misunderstood, and for this reason unnecessarily limiting the client’s career by false fears. I’ve seen it time and again: highly qualified and experienced lawyers telling their clients “Sorry, there is nothing we can do” when, in fact, all that is necessary to win a person’s employment freedom is to read and analyze carefully.
To assist you in doing that for yourself, in my 30+ years of handling non-competition and non-solicitation disputes, I’ve devised a rather simple way to analyze non-competition and non-solicitation agreements. It’s what I have come to call “C.A.T.C.H.,” which stands for (1) Competition, (2) Activity, (3) Time, (4) Conditions, and (5) Horizon.
This is not the usual, hackneyed “Geography, Duration, Scope” legal analysis that so many lawyers will refer to when discussing non-competition agreements. What they would be talking about is that a Judge will often look at the reasonableness of the restrictions’ “Geography, Duration, Scope” and cut one or more of them down if the Judge thinks they are unreasonable.
Our “C.A.T.C.H.” analysis is more immediate, more valuable and more important: “Does this non-competition or non-solicitation agreement even apply to you?” Might careful reading and analysis reveal you have no reason to hire an attorney, due to potentially unfounded fear based on an incorrect analysis? Why hire an attorney, and consider going to Court, if you really don’t need to? More importantly, why turn down a job offer, or not seek one, if you are not really restricted?
This endeavor is not “legal nit-picking.” Instead, it is the essential task of every employed person: to protect your employment freedom, and to utilize your business skills, experience and relations to your very best advantage.
I hope you find my “C.A.T.C.H.” analysis helpful, and its title a little “catchy.”
WHAT YOU CAN DO: Here’s eight steps you can use to help yourself understand whether or not, how badly or not, you may be restricted by a non-competition agreement or non-solicitation clause you have signed, or you may be asked to sign. And, too, they may help you understand how to get around any such restrictions. As Michael Jordan says, “Limits, like fear, are often an illusion.”
1. Always carefully “parse” non-competition and non-solicitation clauses and agreements. “Parse” means “to cut a sentence or paragraph into its parts to better understand it.” I do it with every agreement I review, because “little pieces are easier to digest than are large ones.” Especially in legal documents, parsing is a very useful process.
Imagine a 100-page book that had (a) no chapters, (b) no section headings, and (c) no separate paragraphs. It sure would be hard to read it, understand it, and – for certain of us – remain awake while doing so. Here is what I mean by parsing:
// During the employment relation // and following termination of the employment relation, // by either the employee or the employer, // for any reason // other than by a layoff or restructuring of the employer, // the employee shall not serve the interests of a competitive enterprise // for a period of six months // as an employee, officer, owner, independent contractor or vendor. // For the purposes of this provision, “competitive enterprise” shall be defined as any entity or person who sells furniture, home furnishings, dishes, or glassware // to wholesale distributors // or retail customers // anywhere in the United States.
Breaking down legal language into its component parts in this way promotes clarity of understanding, and suggests ways to work around any restrictive components.
I suggest parsing non-competition and non-solicitation agreements and provisions into five parts: “C,” “A,” “T,” “C” and “H.”
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.] Delivered by Email – Instantly!
2. Here is the “secret”: if one or more of the five “letter-categories” in C.A.T.C.H. is not present in your facts and circumstances, you might just be without a restriction, at all. So, when you parse the legal language of your non-competition or non-solicitation agreement, focus on identifying – or “catching” – any one or more ways that it may be inapplicable to you, or of no substantial consequence to you, or perhaps even fully expired. If so, then it is of no or little risk to you and your hopes and plans to move forward to a better position and company for you and for your career.
So, parse the text of your apparent restrictions, and look for each of the following five different elements. If any one is inapplicable or not found in your facts and circumstances, you have at the very least a good argument for its being of no limitation or restriction on you. Two or more? Even better, but any one of the five will probably suffice.
3. Even if you are restricted to some degree, by identifying the limits of the prohibited Competition, Activity, Time, Conditions, and Horizons, you can then tailor your future activities to sidestep those restrictions. Just as an example, let’s say your reading of your non-solicitation agreement says you cannot “solicit” your colleagues to come work with you on a new job for six months after you resign from your old job.
“Solicit” is an active verb, and requires that you take some action to “lure,” “entice” or “encourage” your colleague to make the move. Does that mean you cannot have dinner together, and share how much you enjoy your new employment? No. Is it wrong, then, to hire your colleagues if they initiate the contact, they initiate the thought of coming with you, and they initiate the hiring? No, even if you can’t “solicit,” if there is no restriction on hiring, then you can hire, so long as you do not solicit.
Likewise, if you cannot “engage in competition” with your former employer, you can still work for a competitor, but engage in a different function, at least until your non-compete period is over.
Signed a Non-Compete Agreement, but want to work for a Competitor? Proactively seek a negotiated resolution, before a legal dispute arises. We offer a “Model Letter: Proactive Attempt to Prevent a Potential Non-Compete Dispute.” What to Say, and How to Say It.” To get your copy, just [click here.] Delivered by Email – Instantly!
4. “C” stands for “Competition” (or, in Non-Solicit Agreements, “Client, Customer, or Colleague”): (a) Non-Competition Agreements: This is the critical question: “Who, exactly, are you prohibited from working for, or with?” Non-competition agreements usually prohibit your working for competitive enterprises, that is, companies or organizations that go “head on” for the same business. Your first task is to identify how the non-competition agreement identifies or describes “the Competition.” That is, what persons, businesses or organizations, if any, are you prohibited from (a) working for, (b) being a partner with, or (c) or becoming affiliated with, after you leave this job?
For example, if “competitive businesses” is defined as “with over $100 million in annual revenue,” and you are seeking to work for a start up, you are free to do so. Or, if “competitors” is defined as “engaged in the sale of commercial real estate,” and you have been asked to become a partner in a residential real estate enterprise, you are free to do so.
(b) Non-Solicitation Agreements: This is the critical question: “Who, exactly, are you prohibited from soliciting?” Non-solicitation prohibit “soliciting” (as further described below) of certain people, businesses or organizations, categories of persons or organizations who your former employer wants you to “stay away from” because it fears losing the relation they have with them, such as (i) employees, (ii) customers, (iii) investors, and (iv) vendors.
If your non-solicitation agreement says you cannot seek out the business of any of your employer’s present clients, then you are free to seek out the business of a former client. Or, if you want to hire away a colleague who is an independent contractor of the company, and your non-solicitation agreement prohibits your hiring any “employee” of the company, then you are free to hire an independent contractor of the company to work for you. So, first, focus on “C,” which stands for “Competition” in non-compete’s, and “Colleagues or Customers” in non-solicitation agreements.
If the facts and circumstances of where you want to work, or who you want to solicit, are within the scope of the Competition, Colleagues or Customers prohibited in your agreement, you need to either find a way to negotiate the terms of that agreement, or alter your planned future activities accordingly.
And, if you find that where you want to work, or who you want to solicit, is outside that scope, you are entirely free to do as you intended.
5. “A” stands for “Activity”: This is the critical question: “Exactly what ‘Activities’ are you prohibited from engaging in by your non-competition or non-solicitation agreement? As noted above, if “soliciting” (that is “luring” or “enticing”) a colleague to work for you somewhere else prohibited, then if the colleague comes to you on his or her own initiative, are you prohibited from hiring that person? The answer is there, in the words: No.
As noted in the Case History above, if you cannot sell products based on the same technology as you did in the past, that does not prohibit you from selling a competing product that is derived from a different technology.
If the non-compete prohibits you from selling a competing product, that does not mean that you cannot work for a competitor in their business development department, because identification and courting of new business is not “selling.”
Signed a Non-Solicitation Agreement? Don’t cease communications with clients. Instead, keep their relations “warm” for later use. Our “Seven Brief Model Letters to Maintain Contact with Former Clients and Customers shows you “What to Say, and How to Say It.™ To obtain your copy, just [click here.] Delivered by Email – Instantly!
6. “T” stands for “Time”: For this “letter-category,” these are the critical questions: “When does the restriction start, and when is it over?” Just last week, a client asked me to help her analyze her non-compete agreement. In the past few years, she had turned down two great job opportunities because of her understanding that she was prohibited from taking them, and was now near desperate to accept a new job offer coming her way. Her non-compete was for “12 months after the completion of the Term of employment.” She believed that the Term of employment ended on her last day of employment, and that her restriction lasted for twelve months after that.
She was mistaken: her non-compete was entirely void and of no effect. Why? Because the contract defined the word “Term” as “three years from the start date” and her start date was nine years earlier. So, her non-competition agreement has been void for at least six years. A truly amazing difference.
Quite often non-competition and non-solicitation restrictions begin at a certain event, such as “beginning the day the Company has terminated your employment,” or “starting the last date you were employed by the company.” Note that in both these instance, if the Company changed your status from “employee” to “contractor” 18 months ago, you have NO non-compete restrictions, as it has been 18 months since you were an “employee.” This is just another example of why it is so important to carefully read and analyze the “T”ime aspects of non-competition and non-solicitation agreements.
7. The second “C” stands for “Conditions.” A “condition” is a certain thing that must happen before some other certain thing can happen. It is a condition that you start you car’s engine before your car will transport you; no engine, no transport. It is also a condition that you must strike a bell before you will hear it ring. Other words for “condition” include “prerequisite” or “requirement.” In law, we often use the phrase “triggering event” to refer to a “condition.”
In non-competition and non-solicitation agreements, we often see conditions that must exist or take place before the restriction becomes applicable or effective.
One example is that many non-competition agreements say “If you are terminated for “cause” or if you voluntarily resign, then you agree you will not . . .” So, if you are terminated “without cause” or if you “involuntarily resign,” you have no non-compete restrictions.[To review a post that explains the concept we invented called “involuntary” resignation, just [click here.]
Always look for triggering events for non-competition and non-solicitation restrictions: they often exist right before you eyes, are enormously valuable in your analysis, and yet so many times they are not noticed, their advantage is underappreciated, and they are, sadly, not used in establishing your employment freedom.
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, plus our 185-Point Non-Compete Guide and Checklist.” To obtain a complete set, just [click here.] Delivered by Email – Instantly!
8. “H” stands for “Horizon.” When I think of the word “horizon” I think of “how far the eye can see.” More practical words for “horizon” might be “coverage” or “extent of applicability.” Non-competition and non-solicitation agreements often have “coverages” of various kinds, such as (a) in the states of New York, New Jersey and Connecticut, (b) for a company whose annual revenues are in excess of $50 million, (c) colleagues who are presently employed or were employed by the company during the past 90 days, and (d) prospective clients to whom you have made hour-long pitches to within the past year.”
Such “horizons” set the limits of any non-competition or non-solicitation restrictions. Know with precision what these are and you may (a) be able to work where and how you want entirely free from restriction, (b) be able to adjust your future efforts to “stay within the lines,” or (c) seek appropriate adjustment by adroit negotiation.
So, if your (i) read carefully, (ii) parse carefully, (iii) analyze carefully, (iv) apply “C.A.T.C.H.” carefully, (v) adjust your future efforts carefully, and (vi) perhaps negotiate adroitly, chances are your non-competition and non-solicitation restrictions – if they are valid and effective – should not be insurmountable.
P.S.: For personal attention and counsel, Al Sklover is available for Private Telephone Consultations on Non-Competition and Related Restrictions on your working freedom. Choose 30-, 60- or 120-minutes. If interested, just [click here.]
Model Letters, Memos, Checklists and Sample Agreements Mentioned Above
185-Point Master Guide & Checklist to Non-Competition Agreements [click here.]
Model Letter: Proactive Attempt to Prevent a Potential Non-Compete Dispute [click here.]
Seven Brief Model Letters to Maintain Contact with Former Clients and Customers [click here.]
“Ultimate Non-Compete Package” includes six Model Letters/Memos, plus our 185-Point Non-Compete Guide and Checklist. [click here.]
Telephone Consultations with Al Sklover [click here.]
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SkloverWorkingWisdom™ emphasizes smart negotiating – and navigating – for yourself at work. Negotiation of work and career issues requires that you think “out of the box,” and build value and avoid risks at every point in your career. We strive to help you understand what is commonly before you, and know what to “watch out” for. Now, the rest is up to you.
Always be proactive. Always be creative. Always be persistent. Always be vigilant. And always do what you can to achieve for yourself, your family, and your career. Take all available steps to increase and secure employment “rewards” and eliminate or reduce employment “risks.” These eight steps to analyzing any non-competition or non-solicitation agreements or provisions, to your maximum advantage, are exactly what SkloverWorkingWisdom™ is all about.
*A note about our Actual Case Histories: In order to preserve client confidences, and protect client identities, we alter certain facts, including the name, age, gender, position, date, geographical location, and industry of our clients. The essential facts, the point illustrated and the lesson to be learned, remain actual.
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Sklover Working Wisdom™ is a trademarked newsletter publication of Alan L. Sklover, of Sklover & Company, LLC, a law firm dedicated to the counsel and representation of employees in matters of their employment, compensation and severance. Nothing expressed in this material constitutes legal advice. Please note that Mr. Sklover is admitted to practice in the state of New York, only. When assisting clients in other jurisdictions, he retains the assistance of local counsel and/or obtains permission of local Courts to appear. Copying, use and/or reproduction of this material in any form or media without prior written permission is strictly prohibited. All rights reserved. For further information, contact Sklover & Company, LLC, 45 Rockefeller Plaza, Suite 2000, New York, New York 10111 (212) 757-5000.
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