Employee Benefits of a Noncompete

In light of the fact that there are obvious disadvantages for an individualto sign a noncompete agreement, why would one do so? For many employees, it’sbecause it’s a condition of their employment — i.e., they won’t be hired orwill be terminated if they don’t sign the agreement. Further, many employeessign noncompete agreement because they’re part of the numerous employmentpapers that they sign in the pre-hire process, and are probably told it is justa standard agreement that all employees sign or must sign. Others sign suchagreements to show their loyalty, their intent to be a “team player.”

Though certain drawbacks are part and parcel to a noncompete agreement,there are benefits, as well. Fundamentally, negotiated restrictions clarify theparties’ obligations. For an employee, the existence of the contractuallimitations may assist the employee in long-term decision making and planningformulations.

Furthermore, given the protections that are afforded by the restrictivecovenant signed by the employee, the employee may feel that the employer istreating the employee as an integral element of the employer’s organization.

To that end, the existence and security of the noncompete agreement mayencourage an employer to use an employee who’s subject to such an agreement insignificant and confidential business decisions and operations. “Someemployers may be more likely to impart knowledge, training or responsibility toemployees who are bound to the company by some type of noncompeteagreement,” says James W. Wimberly of Wimberly, Lawson, Steckel, Nelson& Schneider in Atlanta.

An additional benefit of negotiated contractual restrictions is that it givesan employee the ability to refuse an initial offer of employment or seekadjusted benefits to compensate for the negotiated restriction. In fact, somestates require the employee to receive additional consideration, above andbeyond mere employment, in exchange for a noncompete agreement.

“In 30 to 40 percent of cases in which employees sign a noncompete, theemployee recognized that it was a major give but wanted the job badly enough, orit was a negotiated provision in a truly negotiated contract where the employeegets something in return,” says Steven Kayman of Proskauer Rose in New YorkCity. For example, an employee may receive a higher salary or increased fringebenefits due to the existence of the restrictive covenant. Or the employee mayreceive compensation beyond termination of employment and throughout the periodthe noncompete is in effect. Of course, for applicants or employees with aunique skill set or substantial knowledge base, the ability to bargain over theterms contained in the agreement or the amount of compensation is greater.

Workforce, December1999, Vol. 78, No. 12, p. 50 — Subscribenow!