I work for a test-prep company, and I'd like to start my own test-tutoring business. I was originally hired in a different
city (by a separately owned franchise) and signed a noncompete agreement, which said that I couldn't work for another
test-prep company for a year after leaving. I didn't sign anything when I came to work for the new franchise. Could the
franchise here enforce the original agreement against me? If the agreement says I can't work for another test-prep company,
does that mean I can't start my own?
-- D.R., Boston
Employers use "covenants not to compete" to protect their competitive positions. They may restrict employees from working
for a competitor or disclosing confidential information once they leave. Overly broad covenants -- such as those that try to
restrict employees from working for any competitor, anywhere in the country, for more than a year -- seldom stand up in
court because they unfairly deprive employees of their ability to earn a living. Likewise, if a noncompetition agreement
smacks of punishing someone for leaving a job, courts are likely to strike it down.
To be enforceable, an employer must show that the agreement protects a legitimate business interest, imposes reasonable
time and geographic limitations, does not unduly restrict the employee from earning a living, and is supported by
"consideration." That is, the employer must give the employee something in exchange.
"Usually the consideration is the job itself," says Phillip Trobaugh, an attorney whose practice includes noncompete
contracts at the Minneapolis law firm of Mansfield, Tanick & Cohen. In Massachusetts, courts have ruled that continued
employment qualifies. But in other states, including Pennsylvania, Connecticut, and North Carolina, the employer must give
an employee something else -- a bonus, a raise, a promotion, or stock options.
LIMITED ABILITIES. Each state has different laws governing "covenants not to compete," so you should have a local
attorney advise you on the particulars of your case. A provision of California law, for instance, renders unenforceable
noncompetition agreements between companies and their employees. Other states make them valid only under limited
Experts say if the covenant you signed is enforceable in Massachusetts, it would probably limit your ability to start
your own business. "Generally speaking, anything that's competitive may be held to be a violation of the noncompete, whether
you're starting your own company or working for someone else -- unless the agreement is very narrowly tailored," says
If you signed a contract with the parent company (rather than just with a particular franchise owner), you probably can't
open a competing business for one year in any location where your company would potentially take clients away from one of
the offices under the parent company's umbrella. "It depends upon the scope of the agreement that was signed," says R. Scott
Brink, a partner in the employment group at the law firm of Jeffer, Mangels, Butler & Marmaro, in Century City, Calif. "Did
it have geographic limitations, or did it permit competition in other places? Was it limited to that one franchise, or did
it apply to the parent company in general?" The language is key here. Your attorney should be able to tell you how narrowly
or broadly it is structured.
RESOURCES. You can find more information on this question in a legal reference book called, Covenants Not to Compete:
A State-By-State Survey by Brian M. Malsberger, Arnold H. Pedowitz, and Robert Sikkel. Published by the Bureau of
National Affairs Inc., it was prepared with the American Bar Assn.'s Labor & Employment Law Section's Committee on Employee
Rights & Responsibilities, and it covers statutes, leading cases, and emerging trends on covenants not to compete in each
A couple of legal Web sites, www.lawoffice.com and www.nolo.com, also have informational databases and books that you might find
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