How to Find Loopholes in a Non-Compete Contract
Voiding a non-compete contract is possible in certain circumstances such as proving you never signed it or the contract is against the public interest.7 min read
In certain circumstances, it is possible to find non-compete contract loopholes that may void the contract. For example, if you can prove that you never signed the contract, or if you can prove the contract is against the public interest, you may be able to void the agreement.
We highly recommend you hire a contract review attorney to help, but first, read this article to learn more about the topic.
What Are Non-Compete Agreements?
A non-compete clause is also called a provision or restrictive covenant. The purpose of non-competes is to provide employment context.
A non-compete contract is a legal agreement that prevents an employee from working for other competing firms after leaving their current employer. In some industries, it's common for employers to ask their employees to sign a non-compete contract. While it's true that an employer cannot force you to sign one of these agreements, they may be able to fire you for not signing it, may decide not to hire you if you are a new employee, and can legally avoid paying you severance in some states if you do not agree to it.
Non-compete agreements differ from state to state, as some state courts can disregard the agreements altogether. Some states, on the other hand, see this as a threat to the company's business interests.
How Long Are Non-Competes Valid?
In many businesses, a six-month non-compete will be judged acceptable and enforceable. The rule of thumb is that the agreement should not last longer than is reasonably required to protect the employer's legitimate business interests.
Employer’s Business Interests
An employer can use non-compete agreements to protect themselves from former employees disclosing confidential information about the company, customer relationships, and other operations. Their goal is to mitigate industry competition. In most cases, you must sign the non-compete as part of the employment agreement.
Can Non-Competes Be Enforced?
In most cases, courts will not uphold non-compete agreements because many are not legally enforceable. For an organization, a non-compete can be a significant source of value. In a dispute involving a non-compete contract, the court will usually try to determine if the terms of the contract are reasonable. For a non-compete agreement to be legally enforceable, it must meet several qualifications:
- The agreement must protect a legitimate business interest.
- The scope and length of the agreement should be reasonable.
- The agreement must be in line with the public interest.
If the agreement has no consideration, then it is seen as unenforceable.
Can I Work for a Competitor if I Signed a Non-Compete?
If your employer presents you with a non-compete agreement and you decide to sign the contract, you are promising not to compete against your employer once your employment ends. In addition to preventing you from signing an employment contract with a competitor of your former employer, non-compete clauses can prevent you from:
- Working as an independent contractor with a competitor.
- Becoming the owner or part-owner of a competitor.
- Investing in a competitor.
Do Non-Competes Hold Up in Court?
Non-compete clauses are treated differently by courts in different states. Some states are keen to enforce covenants and will aggressively revise the ones that are overly broad in scope or time to make them more enforceable, while other states are more open.
If your state is more worker-friendly, you could attempt to prove that the terms of the contract are too broad. For example, if the non-compete clause lasts an unreasonable amount of time or restricts you from working in an overly large geographic area, the contract might not be enforceable.
If your employer only operates in a single state, for instance, it would be unreasonable to restrict you from working for a competitor that does not operate within that state. It would also be unreasonable for a non-compete agreement to prohibit you from working for a competitor years after the trade secrets your employer seeks to protect are no longer valid.
How to Get Out of a Non-Compete Agreement: Loopholes
In some cases, it may be possible for you to defeat a non-compete contract.
There Is No Violation of the Agreement
If you can prove that accepting your new job doesn't violate the terms of the agreement, you should be able to accept your new position, and your former employer won't be able to stop you.
Make sure to carefully read the terms of your non-compete contract so you understand its limits. The terms of the agreement may be more flexible than you think.
Illegal or Unethical Employer Behavior
Another way to defeat a non-compete contract is to show that your employer has behaved illegally or unethically towards their clients. In general, an employer will not want these matters raised in a court case, so they may void your non-compete agreement if you have proof of these behaviors.
There Is No Legitimate Business Interest
Showing that the agreement is not related to a legitimate business interest is the most effective way of getting out of a non-compete contract. The goal of any non-compete agreement is to protect trade secrets. If you can show that your former role did not require you to access trade secrets, you should be able to accept employment with any company.
Breach of Employment Contract
Proving there was a breach of your employment contract is another way that you can defeat a non-compete agreement. If your employer did not fulfill the employment contract terms, they likely can't force you to stick to a non-compete agreement.
For example, if your employment contract required that you receive a lump sum payment upon termination and your employer refused to pay this sum, you should be able to void the non-compete clause.
What Voids a Non-Compete Agreement?
Voiding a non-compete contract is possible if your employer promised you something in exchange for signing the agreement and did not intend to fulfill this promise. For example, an employer might state they would only enforce the contract if you tried to work for a specific competitor, but then prevent you from working for a different one.
Negotiating a Non-Compete Agreement
Employees negotiating a non-compete contract with their employer should only agree to terms that are necessary to protect the employer's interests.
If you’re on good terms with the employer as an employee, you should discuss the non-compete agreement and come to a confidentiality agreement.
If you don’t know how to do this, UpCounsel can advise you on your employee rights. It’s important to get an attorney to analyze your contracts and answer your questions, as well as ensure you are safe, as an employee.
What Happens If You Break Non-Compete Agreement?
Breaking Non-Compete Agreements will give your employer cause to fire you. If you signed a Non-Compete, it included clauses related to working for another company. Once you leave your current employer, the Non-Compete contract is still valid.
If you are trying to find loopholes in your Non-Compete Agreement, an UpCounsel employment attorney may be able to help you out.
Here are some legal situations you should be aware of if you break a Non-Compete Agreement:
An injunction is the most frequently requested and granted relief for violating a non-compete agreement.
When an injunctive relief is issued, the previous employer does not attempt to determine whether there are damages.
Alternatively, a previous employer can request a judge to uphold a non-compete Agreement and force the worker to leave their new employer.
Sometimes, former employers may intentionally look for damages against their former employees. Compensation for loss of profits (as a result of a violation) is a common form of damage.
For instance, Cambridge Engineering, Inc. v. Mercury Partners 89 BL, Inc is a case where monetary damages were awarded.
Monetary damages are only granted when there is evidence of a veritable loss. For monetary damages to be granted, there must be evidence of a veritable loss. This loss can vary from small to significant amounts, according to the evidence of damages presented by the employer to the judge.
Punitive damages are another common kind of damages awarded for vindictive behavior. Punitive damages can be granted only if there’s clear proof of intentioned, vindictive conduct. To substantiate a claim, malicious behavior is necessary – so if such a claim is satisfied, punitive damages will be made available.
Liquidated damages are another relief option for the breach of a Non-Compete clause.
These are stated in a contract as the sum, or a formula for producing an exact sum, that one party to a contract will pay for violating that contract.
In the case of liquidated damages, an employer can list a sum their worker must pay if they violate the non-compete contract with their boss.
As liquidated damages are a component of the contract, a new employer will not be required to pay liquidated damages, unless the employee signed an agreement with their previous employer.
A judge will decide whether a liquidated damages clause is appropriate before asking a party to pay the damages. The sum of money depends on the situation.
Court Costs and Attorney Fees
Ultimately, the unsuccessful party could be held accountable for court fees and the cost of hiring an attorney. This will be contingent on whether the victorious party requests these damages and whether the court thinks that the successful party's conduct justifies them paying for these fees.
Which States Do Not Allow Non-Compete Agreements?
Most states recognize non-compete agreements. However, the following states specifically prohibit non-compete agreements in all circumstances:
- North Dakota
- Montana, and
Need Help Voiding a Non-Compete Contract?
If you need help voiding a non-compete contract, you can post your legal needs on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers on its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.
Voiding a Non-Compete Contract: FAQs
What happens if you break a non-compete?
If you break a non-compete, you may be taken to court, should your former employer decide to do so. However, there are potential loopholes you can use to void your non-compete contract
Do non-competes hold up in court?
Non-competes hold up in court if they are applicable in a state that allows non-compete agreements. In the United States, most states allow non-competes, with few exceptions (such as California, North Dakota, Montana, and Oklahoma.