Non-Compete Agreements: Your Nametag Please
From time to time we are asked by candidates to give them a brief summary and opinion of non-competition agreements, commonly known as “non-competes”, in the State of Nevada and with specific emphasis on the gaming industry. While we are not attorneys and nothing in this article should be considered legal advice or counsel, it is important to know from a business and career longevity perspective some of the do’s and don’ts when it comes to these agreements. 1. The Employer’s Perspective: First, let’s take into consideration the perspective of the employer. After all, they are the driving force behind this type of agreement. Traditionally, non-compete agreements were reserved for employees of very senior level who had access to specific trade secrets or other customer knowledge that if disclosed to a direct competitor through an employee acquisition or direct hire, would cause the current employers business substantial harm or impediment. Generally, at this senior level, employees would be looking at these types of agreement with a long term perspective. With that in mind, employees were willing to sign this type of restrictive agreement with “proper consideration”. “Proper consideration” generally means some type of monetary or future monetary reward for agreeing not to compete with the employer in the event you, the employee, left the company. Many times, proper consideration comes in the form of direct cash, stock options or other significant perks not available to the rank and file employees. The current trend for most employers in the gaming industry, who ask employees to sign this type of restrictive agreement, is to give them stock options as proper consideration. We have even seen examples of employers asking prospective employees to sign a non-compete agreement as an initial condition of employment WITHOUT any type of proper consideration. As a professional in the career industry, I would have to question the sanity of any candidate or prospective employee that would trade away their ability to work in a specific industry as dynamic and growing as the gaming industry without some substantial consideration for doing so.
2. Should I sign a non-compete agreement? We are consistently asked this question by candidates and we ask them to do this simple “career equation”: If you can name at least 3 other companies that you would even remotely consider working for at some period in your life that would otherwise be prohibited by the prospective employer’s non-compete agreement, then take a “pass” on the opportunity no matter how good it seems to be. If you cannot name at least 3 companies that you would consider working for at some point and you feel compelled to join the employer requesting a non-compete agreement as a condition of hiring, make certain you get something in return. Do not make this decision quickly. Take the time to find out what they offer others or have offered others as proper consideration for trading away your ability to move to a different employer. Ask them to provide some examples of what they have given others at your career level in terms of stock options, cash, or other financial incentives. If they have a problem supplying you with that information or are reluctant to discuss this, then you have a real problem. Get something for yourself that will make it worth knowing you are now locked into this employer for the foreseeable future because, let there be no mistake, that is what you are doing by signing a non-compete agreement. 3. “I do not know if I am covered by a non-compete”: This statement goes under the category of hopelessly clueless in terms of your career. Let’s do a quick check. First, beyond the obvious statement of how do you possibly not know for certain; let’s find out if you have ever received any stock options or other corporate dividend style of payments. If so, chances are that you signed some type of agreement or understanding as to the rights of the company for so graciously granting you these stock options or other inducements. Generally, hidden away towards the end of these types of “post employment” non-compete provisions is a brief paragraph stating that you will not compete with the employer for a set or defined period of time. For all of those reading this and getting that sinking feeling in their stomach, please go to your personnel file and check to see if this exists. Trust me; HR will have a copy for you.
4. “I think I can get out of my non-compete”: Under the heading of “even more clueless” are those employees who think they can go and fight the company on the non-compete issue and win. While there is actual case law that provides employees with some specific examples to escaping non-compete provisions, getting yourself out legally is a whole other story. Only the “deepest” of financial pockets are ready for the fight to release themselves from a non-compete. We always say in our discussion with candidates: If we had a dollar for every candidate that stated “I know my boss will not hold me to this” or “they did not hold Charlie back from joining XX company” or “they did not enforce it against Charlie when he went to XX company”, we would be very rich men. The cold hard reality is that most candidates do not have the actual financial capacity to take on a corporation in court. There is virtually no chance that a future or prospective employer, no matter how enamored with your skills and potential, is going to take the risk with you of getting sued by your previous employer. If candidates who bluster this “I’ll fight them” statement actually sat down and did the financial math in terms of the resources it would take to successfully defend themselves in this situation, they would think twice about being so naïve. And do not forget, you, the employee, by breaking the non-compete, are the one who “has wronged the other” in terms of the court. You, as the employee leaving, are the one that is causing harm to the employer. Thus, think about the process of “fighting the company” based on your laypersons understanding of the law. Please, go ahead, and spend 30 minutes consulting with an attorney specializing in employment law. Let him layout the potential financial costs for you just to get STARTED defending yourself when your previous employer sues you. That’s “when” not “if” they sue you. Here is the basic summary:
1. When presented with a pre-employment non-compete agreement, KNOW YOUR VALUE: Make certain you are getting something in return for signing this agreement. Whether it is cash, stock or other financial inducements, make certain they are adequate enough to cover all your expenses for the time period you are restricted from working for a competitor if you left or were fired. Example: A six month non-compete period is provided in the agreement. You should receive, at the very least, compensation that would cover all your living costs for the six month period, preferably more. Being duped into signing a non-compete agreement with a company without any financial consideration and being duped or fooled into believing that the offer of employment or continued employment is sufficient financial consideration is just plain stupid. I’ve seen plenty of people do this. We have a nametag for them: MORONS. Any company that seeks to have candidates sign non-competes without tangible financial consideration and just as a “formality of being part of their great company” is not looking out for your interest. Run for the door when presented with non-compete that gives you no immediate financial consideration. 2. If you have a non-compete and are fired or need to leave: Find a job that will help you cover your expenses until the non-competitive period expires. Make certain your new employer does not in any manner fall under the category of “competitive” to your past employer. Do not go down the road of trying to convince prospective employers that you “can get out of the non-compete” or “my previous company will not enforce the non-compete”. No employer in their right mind and with decent legal counsel will hire a candidate who is covered or restricted by a non-compete provision. Thus, it only makes you look foolish to try and do so. Move on with your life. Bide your time and swallow the bitterness. Channel your energy towards being even more successful in the future. 3. If you are still foolish enough to think you can challenge the non-compete legally, go see a qualified employment law firm. When you walk in, rather than ask for the attorney immediately, ask for their “Retainer Agreement”. Whip out your calculator and start punching in the numbers. When done with that immediate sticker shock, add to that the emotional costs that will be associated with such a legal action. Add to that the damage you will do to your professional reputation in the industry. If it still makes sense after that, stop by my office. I’ll have a new name tag for you.
As with any significant career decision, take your time. Seek the advice of trusted associates and family. When it comes time to consider signing a non-compete agreement, invest wisely and select a competent labor or employment attorney skilled in these matters. Have them layout all the pros and cons of signing the agreement with specific note to the financial consideration given. William Werksman is a professional recruiter and frequent columnist to job boards focusing on pertinent recruiting and human resources issues from both the candidate’s and employer’s perspective. His firm, Resource Partners LLC, is the leading source of specialized and executive talent in the Casino and Gaming industry. He manages a select staff of dedicated professional recruiters from their Las Vegas, Nevada headquarters. He can be reached at billw@troptrails.com.