Competing With Your Employer
How wide is a noncompete agreement's grasp?
Q: I'm an e-business strategic consultant and had to sign a noncompete agreement when I accepted employment with a global consulting firm. The agreement stated that I had to disclose business dealings I was involved in but that if I worked on the other business on my own time with my own equipment, I could continue. However, when I disclosed the other business I was involved in, I was told I'd have to walk away from commercializing the business and destroy all documentation (intellectual property frameworks) to prevent my other partners from pursuing the launch as the firm saw the business as directly competing with them.
I verbally agreed but felt coerced into agreeing as the employment offer was being pulled from the table. The contract I signed states only that I must disclose information about business dealings that could be a conflict of interest and that I not directly compete within a 50-mile radius for one year.
Can a noncompete agreement limit me from transferring intellectual property to my partners to pursue? It appears unfair that an employer could attempt to have me restrict/destroy works of intellectual property I had created prior to my relationship with them. Since the agreement was verbal, am I legally bound?
A: Noncompete agreements-the club that gets bashed over a reluctant employee's head when a company is afraid the ungrateful employee might take on the company in the big bad world out there (and maybe even win.)
Over the years, legislators and courts have decided that noncompete agreements can't be used as clubs. They have to be reasonable on three accounts:
1. Time. You can't be restricted from competing "forever" or even close to it. One to three years is a time period considered reasonable.
2. Geography. You can be restricted in an area your competitor has his business, not "nationwide" or "worldwide."
3. Scope. The agreement can restrict certain core functions but can't be so sweeping that the signer won't be able to earn a living from doing what he did for the company.
Laws vary from state to state in terms of how receptive they are to noncompete agreements. California hates them; many other states specify that they must be entered into at the beginning of the employer/employee relationship. If they're tacked on later, there must be something new given by the employer-either a significant promotion, large raise or other similar enticement. And yes, it needs to be in writing.
Which brings us to your situation. There seems to be a few flaws here. You agreed to "disclose business dealings" you were involved in but had permission to work on your own projects on your own time using your own equipment. Fair enough.
But wait! As soon as you leaked a few specifics, all bets were off. No matter whose time it was developed on, your employer decided your ideas were too risky to coexist with their ideas. Destroy documentation? Prevent others from developing your idea? Way beyond the scope of your agreement. Besides, your partners didn't agree to anything.
Not to mention the intellectual property grab they attempted. From what you've said, it was developed prior to your relationship with the global consulting firm on your own time. And it was verbal, to boot. You seem to have the upper hand here. Copyright laws usually only give employers ownership of work created within the scope of their employment (job responsibilities), using the employers' resources to create it.
Since you created documentation outside the scope of your employment (and prior to it), I can't see that the global consulting firm has any claim of ownership.
But just to be safe, I'd go to the Copyright Office and register the intellectual property under your own name. And then either work out a reasonable noncompete with this company or chalk it up to experience and find an employer with a fairer attitude toward competition. And if you're asked to sign a noncompete in the future, call a time-out and run it by a trusted business attorney first.
Joan E. Lisante is an attorney and freelance writer who lives
in the Washington, DC, area. She writes consumer-related legal
features for The Washington Post, the Plain Dealer,
the Spokane Spokesman-Review and the Toledo Blade
(Ohio). She is also a contributing editor to LawStreet.com and
In her practice, Lisante is counsel to ConsumerAffairs.com and was counsel for Zapnews, a fax-based customized news service for radio stations. Previously, she served as Assistant District Attorney in Queens County, New York, and Deputy District Attorney in Nassau County, New York.
The opinions expressed in this column are those of the author, not of Entrepreneur.com. All answers are intended to be general in nature, without regard to specific geographical areas or circumstances, and should only be relied upon after consulting an appropriate expert, such as an attorney or accountant.