Have you ever signed (or been asked to sign) a non-compete agreement? For the majority of salespeople, these documents can be confusing, intimidating, and stress-inducing, leaving us wondering whether we’ve limited our future job prospects in exchange for an existing opportunity.
We wanted to provide some clarity on non-competes as they pertain to sales, so we reached out to Jonathan Pollard, an influential (and outspoken) expert on competition law. He is an attorney and the founder of Florida-based Pollard PLLC, which litigates complex, high-stakes non-compete, trade secret, and unfair competition cases. The firm routinely represents C-level executives and sales executives when they switch companies or start their own ventures. Jonathan has appeared in or on The Wall Street Journal, Bloomberg, NPR, PBS NewsHour, The Guardian, Inc. Magazine, and more. He is nationally and internationally regarded as an authority on non-compete law.
Note: The following interview does not, and is not intended to constitute legal advice; instead, all information, content, and materials are for general informational purposes only. The interview has been edited for clarity.
What is the purpose of a non-compete agreement?
The only valid purpose of a non-compete agreement is to prevent unfair competition. But in America today, 99% of all non-compete agreements fail that test. Instead, corporate America routinely uses non-compete agreements to eliminate ordinary competition, lock up talented employees, and, ultimately, to suppress wages. It's not 1970. Let's stop pretending like Google doesn't exist and like every supposed "customer list" is a trade secret.
How often are non-competes actually enforced?
The enforcement of non-compete agreements is a state-by-state issue. In some states, employee non-compete agreements are illegal and completely unenforceable. Other states are aggressively pro-non-compete. And if you consider that from an antitrust standpoint, that's a problem. To put it simply: Non-compete agreements are restraints of trade. They raise antitrust problems. And under the Constitution, federal antitrust law is supposed to reign supreme. But, in the non-compete context, that hasn't happened. Instead, there are several states that have basically created pro-non-compete regimes that point blank violate the Constitution. So, in some states, courts routinely reject employee non-compete agreements as illegal and unenforceable. But in other states, courts generally rubber stamp non-compete agreements and aggressively enforce them.
Are non-competes for salespeople enforceable?
In some states yes, in some states no. Beyond that, it depends on the nature of the industry and the specific facts of the case. The idea of "protectable" customer relationships is basically this holdover from the world before the internet. Companies and certain courts pretend like it's still 1970, the internet isn't a thing, and the "customers" can't be found on Google, LinkedIn, or Facebook. Law is a system based on precedent. So you still have courts citing cases from 40 or 50 years ago talking about confidential information and "customer lists". And that basically ignores advances in technology and the market realities.
What should a salesperson do if they're asked to sign a non-compete?
Ultimately, it comes down to this: If you NEED the job, then you sign the non-compete and deal with it. If you don't actually need the job, then you have leverage. Then you refuse to sign any non-compete and insist on negotiating. You can only do that if you're willing to walk away. But, if you actually are willing to walk away and you bring that much value to the table, then you have leverage.
Are there any factors that can void a non-compete agreement?
Some states like California, North Dakota, and Oklahoma (among a few others) ban employee non-compete agreements. So non-compete agreements are void as being in violation of public policy in those states. But even in other states where employee non-competes can be enforceable, there are numerous defenses. Again, this all comes down to a state-by-state analysis. But, at large, the strongest defense to a non-compete (other than that it's unreasonable and illegal) is probably a prior breach of contract by the company. The most classic prior breach is a company failing to pay agreed-upon compensation. This routinely crops up in the sales context.
If a salesperson has signed a non-compete, but they've left their employer to sell for someone else, how much risk do they face?
Again, this all varies (a) from state to state and (b) based on the specific facts and circumstances. Unless the sales person does not have a non-compete or non-solicitation agreement whatsoever, then there is real risk. If their non-compete agreement is governed by NY law, maybe that risk is lower. If their non-compete is governed by FL or TX law, that risk is almost certainly much higher. These situations require actual legal advice.
Is there anything else you think salespeople and their managers should know?
Employee non-compete agreements are outdated and no longer serve any valid business purpose. In today's world, they are nothing more than illegal efforts to eliminate ordinary competition and suppress wages. Companies that abuse non-compete agreements ultimately do more harm than good. They end up losing talent. And, if there is litigation, clients end up in the middle of it. That's not good for business. Bottom line: Corporate America needs to imagine a world after employee non-compete agreements. Because that's where society is headed. In the next 10 years, employee non-compete agreements will all be banned. Companies better get ready.
