December 11, 2018 • Richard Neisz

What You Need to Know Before Signing an IT Non-Compete Agreement

Non-compete agreements can make navigating the IT consulting market extraordinarily frustrating. The tech industry is experiencing a time of unparalleled advancement and competition – causing employers to fiercely protect their organizations by extending these contracts to consultants. Non-compete agreements have the ability to hinder future entrepreneurial activity, as well as your mobility as an employee. Before blindly signing on the dotted line, there are numerous factors that you must consider – here’s what you need to know about IT non-compete agreements.

Location

When it comes to enforcing a non-compete, one of the most critical factors is an employee or employer’s location. There are no broad federal enforcement laws – some states allow the clauses while others, like California, have regulations that make them unenforceable. Oftentimes, non-competes are tied to a specific geographical location but, in some cases, they are even national in scope.

Analyzing U.S. Census Bureau data from 30 states, the Academy of Management found that tech workers in states with stronger non-compete clauses are working at an economic disadvantage to their peers in states with less restrictive non-competes. When professionals kick-off their career in these states, their salary is consistently lower than their peers, regardless of whether or not they leave the state. On average, tech workers in strict non-compete states earned an average of 4.4% less than their peers over their first seven years.

In Virginia, courts favor fair competition and the boost it gives both the economy and consumers. Non-compete agreements are enforceable in the state if they narrowly protect business interests without infringing on an employee’s ability to earn a living. Contracts must pass a three-prong test:

The restriction is “no greater than is necessary to protect the employer’s legitimate business interest”;
The agreement is not excessively severe or oppressive in restricting the employee’s ability to find another job or make an income; and
The promise does not violate a clear mandate of Virginia public policy.

Duration

The timelines for non-compete agreements vary. Some contracts have a shorter duration due to their large geographic scope, while others are longer because sensitive information is involved. Typically, non-compete agreements last for 12-24 months, and longer clauses often run the risk of being deemed unreasonable in court. Many states have specific time limitations that all non-competes must abide by.

Liability

Only 1 in 10 workers seek legal counsel to review non-compete contracts before they sign. This could be because 70% of employees aren’t asked to sign until after receiving their job offer, with 47% asked on or after the first day of work. With such limited time to prepare, employees often agree to stipulations that they don’t fully understand under the pressure of their new employer. Don’t be fooled – even when they seem lenient, these contracts can have long-term effects on your employment and limit your future growth potential.

One study found that workers’ job mobility fell by 8% when non-competes were allowed. The agreements prevent professionals from working at their preferred employer or earning a competitive wage in the future. They reduce bargaining power and restrict employees from working for any competing firm. Non-competes can limit your employment opportunities in entire trades for months on end, leaving many professionals at a loss for their next career move.

Consider Your Options

With 20% of American workers currently bound by a non-compete and nearly 40% subject to one at some point in their career, it’s important to understand the clause and your options. Fewer than 10% of new employees will try to negotiate their non-compete clause, according to the U.S. Department of Treasury. If faced with signing a non-compete, start by explaining your concerns to the hiring manager, such as unforeseen layoffs. Also, ask for an explanation for why the employer finds a non-compete necessary. For instance, if the company is concerned about protecting sensitive information, try to negotiate a non-disclosure agreement instead of a non-compete. NDAs are significantly less restrictive in the long-term than non-compete agreements and you’ll still be protecting your employer’s best interests.

Ultimately, it’s critical to know that you don’t need to sign a non-compete agreement to have a high-quality position in today’s market. With such low unemployment in the tech industry, IT professionals have a wealth of opportunities at their disposal.

One way to find a position that doesn’t require a non-compete is by working with a staffing partner who can assist in finding you positions that don’t require the agreements. Smart Resources is a Richmond-based IT consulting firm with an expansive network of area IT clients searching for industry talent. With the assistance of the Smart team, you can discover your next tech consulting opportunity without the fear of having to deal with a non-compete agreement.